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.”