The Right Game: Use Game Theory to Shape Strategy

If business is a game, it’s not about winning or losing but about how you play the game. The book entitled Theory of Games and Economic Behavior has been heralded as one of the greatest scientific achievements of the century. In fact, the authors won the Nobel Prize for it. The book provided a systematic way to understand players with interdependent fortunes. The basic idea is that every action does not have an equal but opposite reaction when it comes to business, and that all moves need to be thought about well in advance before being executed. What will others do once you move? One needs to analyze the added value of every player including themselves.

Situations involving competition are often thought of in win-lose terms. But how can a company change their strategy from win-lose to win-win? Coopetition is a term created to describe looking for win-win as well as win-lose opportunities. Companies can get locked into a cycle of destructive competition, a process in which each company will lower their prices in order to undercut the other. This could result in a situation much like auto companies saw, such as customers coming to expect rebates. There are ways around this however. For example, GM changed the game by offering a discount “GM Card”. The card replaced previous incentives, and GM saved money in the long run. Other companies copied the idea and also made money without stealing customers from GM. GM turned a losing situation for everyone into a winning situation for everyone without hurting anyone in the process. Win-Win moves have major advantages such as potential for finding new opportunities, less resistance from competitors, and turning imitation into a good thing.

One way to start thinking in a coopetitive way is to take a look at the “Value Net” for your company. Value Net is a mapping of the relationships between your suppliers, substitutors, complementors, and customers. Suppliers and customers are on a vertical axis,