Coopetition

DEFINITION of 'Coopetition'

Coopetition is the act of cooperation between competing companies; businesses that engage in both competition and cooperation are said to be in coopetition.

Certain businesses gain an advantage by using a judicious mixture of cooperation with suppliers, customers and firms producing complementary or related products. Coopetition is a form of strategic alliance and is common particularly in the computer industry between software and hardware firms.

BREAKING DOWN 'Coopetition'

Coopetition is a business ideology taken directly from insights gained from game theory. Coopetition games are statistical models that consider the ways in which synergy can be created by partnering with competitors. This tactic is thought to be a good business practice between two businesses because it can lead to the expansion of the market and the formation of new business relationships. In this capacity, agreements on standards and developing products across an industry or between two competitors is necessary to implement coopetition.

The Coopetition Model

The statistical model determines the benefits of coopetition and also looks at the allocation of market share between competitors to maximize the market share of leading companies. The model is initially drafted using a diamond shape, with customers, suppliers, competitors and complementors in each corner. The aim of coopetition, and the model itself, is to move the market from a zero-sum game, where a single winner takes all, to an environment in which the end result benefits the whole and makes competitors alike more profitable.

The linchpin of the model is understanding the input variables that will influence the players within the diamond to compete or cooperate. This understanding leads to knowing which forces will make the players compete and which forces will make them cooperate, and to what capacity. Professors from Harvard and Yale, Adam M. Brandenburger and Barry J. Nalebuf, pioneered the idea of coopetition.

Reasons Why Companies Conduct Coopetition

The most common sector that acts in coopetition is the technology industry. Cooperation between competitors allows for hardware and software synergies. Many startups, especially in the technology industry, are competing in a similar market but have unique advantages. Two competitors may have complementary strengths, and a coopetition agreement can be formed to share in common gains. Coopetition between two tech companies can increase the chance of user growth within each company through cross-channel promotion. Often in the startup space and the tech industry, two or more competitors are fighting a larger competitor, and tech companies can integrate together to form coopetition against a larger foe. Coopetition in the tech industry is prevalent since it's common for two competitors to become acquired or merge, forming a stronger entity.