Competition & CollaborationCompetition & Collaboration

Game TheoryGame Theory

Adam M. Brandenburger of Adam M. Brandenburger of Harvard Business School & Barry Harvard Business School & Barry Nalebuff of Yale School of Nalebuff of Yale School of Management, utilized game Management, utilized game theory- the mathematical study of theory- the mathematical study of decision making to business decision making to business strategy.strategy.In May 1996 they published their In May 1996 they published their signature work , “ Coopetition” signature work , “ Coopetition” which formed an exciting new which formed an exciting new approach to strategy.approach to strategy.

Business is a game, just like many Business is a game, just like many think it is. But business is a game with think it is. But business is a game with a difference. a difference. In any game someone must lose in In any game someone must lose in order for you to win;order for you to win;

As Gore Vidal puts it, it is not enough As Gore Vidal puts it, it is not enough to succeed, Others must fail “to succeed, Others must fail “

Things are just the opposite in Things are just the opposite in business. “ In business” your success business. “ In business” your success doesn’t require others to fail – there doesn’t require others to fail – there can be multiple winners.can be multiple winners.

In short business is war, but it is In short business is war, but it is also peace. You have to compete, also peace. You have to compete, but if you are smart, you will also but if you are smart, you will also cooperate. cooperate.

You must do the same You must do the same simultaneously.simultaneously.

Business is cooperation when it Business is cooperation when it comes to creating a pie and comes to creating a pie and competition when it comes to competition when it comes to dividing it up. In other words dividing it up. In other words business is War & Peace business is War & Peace simultaneously.simultaneously.

Most importantly, game theory not Most importantly, game theory not only shows you how to play the only shows you how to play the game of business but actually game of business but actually change the game to one closer to change the game to one closer to your liking. That is where ,the your liking. That is where ,the authors suggest the big payoff authors suggest the big payoff from game theory comes in.from game theory comes in.

Changing the game of business starts with changing Changing the game of business starts with changing the parts. In any game, there are five basic the parts. In any game, there are five basic elements:elements:

PlayersPlayers- the participants in the game- the participants in the gameAdded values- Added values- the value the the value the participants bring to the game.participants bring to the game.Rules Rules – the regulations governing how – the regulations governing how the game is playedthe game is playedTacticsTactics- the moves players can make - the moves players can make to gain advantageto gain advantageScopeScope- the boundaries of the game- the boundaries of the game

To change the game,one needs to change one or To change the game,one needs to change one or more of its elements. Change one of the parts and more of its elements. Change one of the parts and you change the wholeyou change the whole

Changing the game by changing players

With regard to changing the players, With regard to changing the players, before you enter game, asses your before you enter game, asses your added value. If you have a high added added value. If you have a high added value, you’ll make money in the game; value, you’ll make money in the game; so go ahead and play. But if you don’t so go ahead and play. But if you don’t have much added value--- you may still have much added value--- you may still be able to make money by changing be able to make money by changing the game---- consider bringing in in the game---- consider bringing in in customers, suppliers, complementors customers, suppliers, complementors and even competitors. Any time the and even competitors. Any time the cast of players changes, so do added cast of players changes, so do added values.values.E.g. IBM with Intel. E.g. IBM with Intel. Compaq and Dell with Intel Compaq and Dell with Intel

Changing the game by Changing Changing the game by Changing the Added valuethe Added value

Limit supply-Limit supply-Nintendo and Harley- DavidsonNintendo and Harley- DavidsonBajaj Scooters in the 1980’s and early Bajaj Scooters in the 1980’s and early 1990’s1990’s

Make your product better.Make your product better.

Create Customer Loyalty.Create Customer Loyalty.

Changing the game by Changing Changing the game by Changing Rules:Rules:Using MFC’s ( most favored customer)Using MFC’s ( most favored customer)Wal- Mart’s tie up with BhartiWal- Mart’s tie up with Bharti

Changing the game by Changing Changing the game by Changing tactics:tactics:Changing Perceptions- Gillette’s Sensor Changing Perceptions- Gillette’s Sensor Shaving SystemShaving SystemReliance Power- IPO .Reliance Power- IPO .Microsoft’s PowerPoint vs. Harvard Microsoft’s PowerPoint vs. Harvard GraphicsGraphics

Changing the game by Changing Its Changing the game by Changing Its Scope :Scope :

For example you wan to get into a For example you wan to get into a game , but there is already a powerful game , but there is already a powerful player. Do you challenge him or her on player. Do you challenge him or her on the existing turf, or do you change the the existing turf, or do you change the game and create some turf of your own game and create some turf of your own ??

Examples-Examples-Sega did to Nintendo in the late 1980’s.Sega did to Nintendo in the late 1980’s.Reliance Refinery at Jamnagar vs. Reliance Refinery at Jamnagar vs. Shell’s plansShell’s plansTata small car project-NanoTata small car project-Nano

Changing the game is not Changing the game is not something one want to do once something one want to do once and then forget about . It’s best and then forget about . It’s best viewed as an ongoing process. No viewed as an ongoing process. No matter how successfully you have matter how successfully you have seized your current opportunities, seized your current opportunities, new ones will appear that can be new ones will appear that can be best utilized by changing the game best utilized by changing the game again. There is no end to the game again. There is no end to the game of changing the gameof changing the game..