Coopetition

What Is 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 type of strategic alliance that is particularly common between software and hardware firms.

Understanding 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.

The 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 are 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 everyone more profitable.

The linchpin of the model is understanding the input variables that 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.

Benefits of Coopetition to Companies

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 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.

Real-World Example of Coopetition

On March 17, 2020, Pfizer Inc. (NYSE: PFE) and BioNTech SE (Nasdaq: BNTX) announced a collaboration to jointly develop a COVID-19 vaccine. The coopetition agreement between the two companies increased the manufacturing capacity to meet the global supply for the vaccine, such that the companies were able to produce millions of vaccine doses by the end of 2020 and hundreds of millions of additional doses in 2021. 

In June 2021, the companies announced another deal with the government to provide 500 million more doses of the vaccine to support some of the poorest countries. The agreement states that 60% of the doses to be purchased during the first half of 2022.

BioNTech contributed the vaccine candidates, while Pfizer contributed the clinical research and development as well as the manufacturing and distribution capabilities of the company. 

BioNTech received an upfront payment from Pfizer of $185 million as well as an equity investment of nearly $113 million, with a potential of $748 million in total future payments if specific milestones are achieved.