Cooperate AND Compete Saturday, Apr 17 2010 

Yesterday, in my managerial economics class with professor Komai, we talked about “co-opetition.” Coopetition is a portmanteau of “cooperation” and “competition,” and it essentially means cooperative competition. This is the first time I’ve heard of the concept being formally introduced, and the first time I’ve ever heard of the concept was when Barry Nalebuff, a professor of management at Yale University, gave a speech about it at last March’s Winter Institute. (I wrote about his speech, briefly, here.) The idea that he introduced was that firms, even if they are competitors, work together in such a fashion that they can “expand the pie,” which he argues is better for both the consumer and the firms. He is careful to note that he does not advocate collusion or anti-competitive behavior. The difference between coopetition and, say, collusion is that the former is a strategy for expanding the market whereas the latter is a strategy to divide the market. In this sense, coopetition is not anti-competitive. I’m sure there are various examples that Dr. Nalebluff offers in his book, but I have not read it. One example might be if two newspapers share their distribution systems. In this way, they are not being anti-competitive, but are acting cooperatively to expand total demand (i.e. the size of the market).

What Dr. Nalebluff does brilliantly is take microeconomic and managerial economic theory and apply it to the real world. Too often, these theories focus on competition. How can oligopolies compete? Managerial economics gives many neat theories about how firms can set prices and quantities to compete effectively with their competitors. It also tells us how anti-competitive cooperation between firms is bad for society (e.g. when firms collude). But not often spoke about is how firms can effectively cooperate with each other and still compete at the same time.

This is why, I think, King Banaian of the economics department here at SCSU got so worked up last September about a note hung up on a board on campus that read, “Cooperate, DON’T Compete.” Dr. Banaian implied that such a comment was the result of “indoctrination” and was surprised by how remarkably “economically illiterate that comment was.” (Although, as I explain in the comment section, it’s not at all clear that the writer of this message was even talking about economics.) Even if the author of this message was talking about economics, is it true that such a comment is remarkably “economically illiterate”?

Everyone in economics is taught that competition is a good thing. We’re usually told cooperation is a bad thing. We can learn something from applied managerial economics though, which is that this conception of economics is not necessarily true. Competition in economics is good, yes, but cooperation can be too. Although economists seem to focus on how competition can be used effectively, there are other aspects to consider. Firms, after all, can cooperate with suppliers, can cooperate with governmental agencies, can cooperate with their employees, and can even cooperate with competitors (hence coopetition). More aptly, the comment should read, “Cooperate AND Compete.”

Some updates Saturday, Mar 6 2010 

I was only able to attend one of the speeches at the Academic Event of the Winter Institute, but I was glad it was Barry Nalebuff’s speech. Dr. Nalebluff is a professor of management at Yale University and is considered “an expert in business strategy and game theory” (Wikipedia). His speech was fascinating and I think Dr. Nalebluff is an excellent speaker. The title of his speech was also the subject of his book with Adam Brandenburger, “Co-opetition.” Co-opetition is a portmanteau of “cooperation” and “competition,” and it essentially means cooperative competition. The problem, says Dr. Nalebluff, is that we lack even the vocabulary to talk about the business strategy he advocates. What he advocates is that firms, even if they are competitors, work together in such a fashion that they can “expand the pie,” which he argues is better for both the consumer and the firms. He is careful to note that he does not advocate collusion or anti-competitive behavior. Co-opetition does not refer to how firms cooperate with each other to “divide the pie”; it is simply meant to increase the size of the industry as a whole and lower prices. He gives several examples of its application, but I won’t bother going into details here. The message I think that should be taken is that the old business models of “destroying your competition” and being envious results in less efficient outcomes than when firms also cooperate with each other in such a way that helps reduce prices and increase demand.

Another note I would like to make is regarding the Chile fundraising party that was held last Thursday. The Spanish Club along with several Chilean students hosted a dance for Chile in Atwood’s ballroom. The cost was $3 to get in and they also sold $1 raffle tickets for some prizes (e.g. music by Spanish professor Michael Hasbrouck). I was glad to volunteer my time; the earthquake that hit Chile was among the largest ever in history and killed hundreds of people and caused billions of dollars in damage that the Chilean government says will take years to recuperate from. The Chileans on campus, and there are not many, are quite distraught over the whole event, and rightfully so. I have to say though, people have been overwhelming generous in Chile’s time of need. In just 3 days, the organizers of this event collected nearly $1,800 in donations (most of which came from the dance). It hasn’t yet been decided where the money is going, but the organizers want to go toward helping out a small community that was struck by the earthquake. Again, I would like to say thanks to all the organizers who put on this event in such a short order and all those who have donated money for helping Chile.

Finally, I just finished writing an essay on globalization’s effect on child labor for my international economics class with Dr. Lo. I chose the topic after making a post last month about ending child labor. Though length quotas for the paper put a limit on how in-depth I could explore the subject (which is enormously vast), I did do some more research and I may make a new post regarding some of the findings I came across, which are indeed fascinating.

Winter Institute Tuesday, Mar 2 2010 

Again for those in the St. Cloud area, the economics department of SCSU is holding their 48th annual Winter Institute summit regarding “business and economic leadership.” It is being held on Thursday, March 4th. The first half of the event, dubbed the Academic Event, is being held in the Kimberly Ristche Auditorium in Stewart Hall for free from 8:30 A.M until 12:45 P.M. There will be lunch at noon in Atwood for $12.50, but this requires registration and I believe it is full at this time. A list of topics and speakers for the Academic Event cant be seen here. Following the Academic Event will be the Business Event, which is being held at the Best Western Kelly Inn from 2:30 P.M. until 7:30 P.M. This also requires registration and a fee. I’m not sure if this event is also full at this time. A list of topics and speakers for the Business Event can be seen here.

The event is being described as “a valuable glimpse into a vastly changed economy. Attend the SCSU morning & luncheon events for a deep discussion on economic theory, or come to the Kelly Inn afternoon & evening events for business insights and bold predictions.” There appears to be a good lineup of economics speakers for the Academic Event, including Barry Nalebuff of Yale University, Costas Azariadis of Washington University, James Bullard who is the president of the Federal Reserve Bank at St. Louis. The Business Event will include these same speakers, as well as some regional businessmen and King Banaian, who is the chairman and a professor of the economics department. The closing speaker will be Yoram Bauman who is also from the University of Washington.

Dr. Bauman is particularly interesting to me, given that he will be speaking on climate change and because I’ve done a great deal of research on the topic as well (see here for previous posts on the subject). I won’t be attending that event, but I did read a few posts on his blog regarding climate change, and they’re all quite interesting. I’m glad Dr. Bauman recognizes that climate change is a real problem and that it has significant economic implications. I was reading, for example, this post about “libertarians on global warming,” where he accuses libertarians of the “Three No’s” (a humorous reference to the dubious “Three No’s” associated with the Khartoum Resolution): “No recognition that climate change is a theoretical possibility … No peace with the IPCC … No negotiation about climate change science, i.e., no serious scientific engagement.” It is true that rightist libertarians (e.g. Cato Institute) do tend to deny climate change science for whatever partisan reasons they have (they surely have no scientific basis), but I don’t think this necessarily has anything to do with libertarianism per se. True libertarians ought to be concerned—not dismissive—about climate change, as it represents a serious violation of the rights of not only current human beings but also of future human beings, as I explain in this post. As I point out, the issue is essentially an issue of externalities, which has an easy (market-based) solution. Dr. Bauman seems to agree when he writes, “the way market-based instruments reduce pollution is by making pollution expensive.” However, I unfortunately won’t be attending that event, so I won’t be able to write about it.

This summit presents a great opportunity for those in the St. Cloud area to be engaged in the economic issues of our time and is being presented by great economic thinkers. It’s not an opportunity you’ll want to miss. I will try to attend some of the speeches and may post a response some time later.

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