Joe: The most famous business advice is to 'crush your competition.' But what if the secret to winning isn't to declare war, but to invite your rival over for dinner? Lewis: Okay, that sounds like the prelude to a very awkward meal or a corporate espionage thriller. Are you suggesting I share my secret sauce recipe with the guy who’s trying to steal my customers? Joe: It sounds crazy, but it might be the smartest move you ever make. That's the provocative idea at the heart of Co-opetition by Adam M. Brandenburger and Barry J. Nalebuff. Lewis: Right, and these guys aren't just some motivational speakers with a catchy phrase. They're serious academics from Yale and Harvard, right? Experts in game theory. Joe: Exactly. And in the mid-90s, when the business world was completely obsessed with Michael Porter's 'Five Forces' model—which is all about fending off rivals—they dropped this bombshell. It was a book that used the cold, hard logic of game theory to argue for, of all things, cooperation. It forced a generation of executives to rethink the entire game. Lewis: So it was a bit of a contrarian bomb thrown into the corporate world. I like that. Joe: It was. And to see why their idea was so revolutionary, we have to start with a story of what happens when the old 'business is war' mindset goes horribly, horribly wrong.

Joe: Lewis, when you hear the phrase "business is war," what comes to mind? Lewis: I picture boardrooms with generals, maps with pushpins representing market share, talk of "taking territory" and "vanquishing the enemy." It's all very dramatic, very zero-sum. For me to win, you have to lose. Gore Vidal had that great line: "It is not enough to succeed. Others must fail." Joe: That quote is in the book, and it perfectly captures the mentality that the authors want to dismantle. They point to a real-world catastrophe to show why: the U.S. airline industry in the early 1990s. Lewis: Oh, I have a feeling this is not going to be a story with a happy ending. Joe: Not at all. After deregulation, the airlines were unleashed. They saw each other as mortal enemies. So, American Airlines decides to simplify its fare structure and, in the process, cut some prices to gain an edge. How do you think United and Delta responded? Lewis: Let me guess. They said, "What a wonderful, consumer-friendly move! We applaud you!" and did nothing? Joe: Of course not. They immediately matched the cuts and then went even further. This triggered an all-out price war. Every time one airline dropped its prices, the others would retaliate with even deeper cuts. They were so focused on beating each other, on winning the "war" for passengers, that they completely lost sight of the bigger picture. Lewis: Which was… making money? You know, the actual point of a business? Joe: Precisely. The outcome was an absolute bloodbath. The book cites the staggering statistic that from 1990 to 1993, the U.S. airline industry collectively lost more money than it had made in its entire history, stretching all the way back to the Wright brothers. Lewis: Wait, hold on. Say that again. They lost more money in three years than in the entire history of flight? That’s not a business strategy; that’s a collective suicide pact. It’s like a race to the bottom where everyone wins a gold medal in bankruptcy. Joe: That's the perfect way to put it. They were so busy fighting over their slices of the pie that they burned the entire pie to a crisp. This is the ultimate failure of the "business is war" mindset. And the authors present an alternative. They say business is not war, and it's not peace either. It's both, simultaneously. They coined a term for it: Co-opetition. Lewis: Co-opetition. Cooperation and competition, mashed together. It’s a clever word, but it feels like a paradox. How can you cooperate with the very people you're competing against? Joe: By changing the question. Instead of asking, "How do I beat my competitor?" you ask, "How can I work with others—including competitors—to make the overall pie bigger?" Think about the early days of the personal computer. Microsoft made the operating system, and Intel made the microprocessors. Lewis: The famous "Wintel" alliance. Joe: Exactly. Microsoft’s advanced software needed more powerful chips, which drove sales for Intel. Intel’s faster chips enabled Microsoft to create even more powerful software. They were technically separate companies, but they were cooperating to create a much, much larger market for PCs than either could have created alone. They created a massive pie together. Then, of course, they competed fiercely with others to see who could capture the most value from that pie. That's co-opetition in a nutshell: working together to create value, competing to claim it. Lewis: Okay, that makes sense. You're not holding hands and singing Kumbaya. You're strategically collaborating to grow the whole ecosystem, which gives you a better shot at growing yourself. It’s a shift from a zero-sum game to a positive-sum game. Joe: You've got it. But the real genius of the book is that it doesn't just stop at this high-level concept. It gives you a concrete, practical toolkit for actually doing it. It teaches you how to stop just playing the game and start changing it.

Lewis: Okay, so 'co-opetition' sounds good in theory, but how do you actually do it? It feels abstract. If I’m running a small bakery and another one opens across the street, what does "co-opeting" even look like? Do I send them a welcome basket of my best croissants? Joe: You could! Or you could see if they specialize in cakes while you specialize in bread, and then you agree to send customers to each other. The authors provide a systematic framework for thinking through these possibilities. They call it the PARTS model. It’s an acronym for the five elements of any business game that you can change: Players, Added Value, Rules, Tactics, and Scope. Lewis: PARTS. Okay, break that down for me. Joe: Sure. Players are everyone involved: your customers, suppliers, competitors, and a key group they identified called 'complementors'—like the bakery that sells cakes to go with your bread. Added Value is what you uniquely bring to the table that makes the pie bigger. Rules are the laws, contracts, and customs that govern how the game is played. Tactics are the moves you make to shape people's perceptions. And Scope is the boundary of the game—are you just playing in one city, or are you linking it to a national game? Lewis: So it's a checklist for becoming a game master, not just a pawn. Joe: Exactly. And there is no better case study of a company mastering every single one of these levers than Nintendo in the 1980s. Lewis: Ah, the golden age of 8-bit. I can hear the Super Mario theme in my head already. Joe: Well, that music was the soundtrack to one of the most brilliant business strategies ever executed. After the video game market crash of 1983, Nintendo didn't just enter the market; they rebuilt it in their own image using the PARTS framework, even before the book was written. Lewis: How so? Give me the breakdown. Joe: Okay, let's go through it. First, Players. Nintendo completely controlled who was allowed to be a player in their game. To make a game for the Nintendo Entertainment System (NES), you had to become a licensee. Nintendo was the gatekeeper. Lewis: So they were the bouncer at the door of the world's most popular club. Joe: A very strict bouncer. Next, Added Value. Nintendo did something brilliant. They sold the NES console itself at a very low price, almost at a loss. The hardware had very little added value for them. But the games? They were a goldmine. They manufactured every single cartridge themselves and charged the game developers a huge markup. They shifted the value from the one-time console purchase to the repeatable game purchases. Lewis: That's smart. Get the razor in their hands for cheap, then sell them the blades for a fortune. Joe: Precisely. Now for the most incredible part: the Rules. Nintendo's licensing agreement was a work of art in corporate control. Rule one: Licensees could only release a maximum of five games per year. This prevented the market from being flooded with low-quality titles, which caused the 1983 crash. Rule two: Nintendo had to approve the content of every game—no excessive violence or sexuality. Rule three, and this was the killer: an exclusivity clause. If you made a game for Nintendo, you were forbidden from releasing that same title on a competing console, like one from Atari or Sega, for two full years. Lewis: Whoa. That's not a rule; that's a golden handcuff. You're basically saying, "You can play in our sandbox, but you can never, ever leave." This isn't a business; it's a kingdom! The president, Hiroshi Yamauchi, was the king, and the game developers were his vassals. Joe: The book quotes him saying his philosophy was "One strong company and the rest weak." He wasn't kidding. Then you have Tactics, shaping perceptions. Nintendo launched Nintendo Power magazine. On the surface, it was a fun magazine for kids with tips and previews. But strategically, it was a propaganda machine. It told millions of kids which games were cool, which to buy next, and created this constant hype cycle that Nintendo itself controlled. Lewis: They were creating the demand and shaping it at the same time. That's diabolical. What about the last one, Scope? Joe: Scope. They masterfully managed the transition from the 8-bit to the 16-bit era. They held off on releasing their 16-bit Super Nintendo for as long as possible, even after Sega launched its Genesis. Why? To keep the scope of the game focused on the 8-bit market, where they had a near-total monopoly and were printing money. They consciously sacrificed an early lead in the next game to maximize their profits in the current one. Lewis: That is an absolutely stunning level of strategic control. But come on, could a company get away with that today? With modern antitrust laws and the internet making everything transparent, it feels like they’d be sued into oblivion. Joe: You're right, and that's a fair critique some people have of the book—that some of the examples are from a different era. You probably couldn't replicate Nintendo's exact strategy today. But the principles are timeless. You might not be able to build a walled garden like Nintendo did, but you can still be incredibly clever about the rules and tactics you use. And that's where the game gets really interesting, in the subtle, psychological details.

Joe: You're right, that level of total control is rare. But the most subtle parts of that strategy—Rules and Tactics—are things any business can use. And sometimes they work in ways you'd never, ever expect. The book has this perfect, mind-bending example using a simple card game. Lewis: I'm ready. My brain is warmed up. Hit me with it. Joe: Okay. Imagine I'm a professor, and you're one of 26 MBA students in my class. I have 26 black cards, and each of you has one red card. The dean has put up a prize: for every black-red pair we create, the dean will pay out $100. The only rule is you have to negotiate with me one-on-one. Lewis: Okay, so there are 26 black cards and 26 red cards. A perfect match. My red card is worthless without one of your black cards, and your black card is worthless without my red one. It’s a perfectly symmetrical situation. We should split the $100 prize 50/50. I get $50, you get $50. Joe: A perfectly rational conclusion. But now, let's change one tiny rule. Let's say one student, we'll call him Tarun, has to leave for a job interview. Before he goes, he's worried he'll miss out. So he asks me for a special deal. I tell him, "Tarun, don't worry. I'll give you a 'Most-Favored-Customer' clause. Whatever the best price I give to any other student for their red card, I promise I'll give you that same price." Lewis: That sounds like a great deal for Tarun! He's guaranteed to get the best price in the room without even having to be there. He can go to his interview stress-free. Joe: That's what he thinks. Now, Tarun leaves. You're the next student to negotiate with me. You come up and say, "Joe, I want $50 for my card." What do I do, knowing I have this MFC promise with Tarun? Lewis: Well, you'd probably try to haggle me down a bit, but you know I have power, so you'll eventually agree to something close to $50. Joe: Ah, but think about the cost. If I give you $50, how much does that actually cost me? Lewis: It costs you $50. You get the other $50 from the dean. Joe: No. Because of my promise to Tarun, the moment I agree to pay you $50, I am now legally obligated to also pay Tarun $50. So giving you that price just cost me $100 out of my potential earnings. Every dollar I concede to you costs me two dollars. This makes me an incredibly tough negotiator. I'm going to fight you tooth and nail for every single dollar. I might only offer you $10, arguing that if you don't take it, I'll just make a deal with the other 24 students and you'll get nothing. Lewis: Hold on. So the rule that was designed to protect Tarun and get him the best price is the very thing that incentivizes you to give everyone, including him, a terrible price? Joe: Exactly! The MFC clause completely changed the game. It made the seller, me, much more powerful. The students, who thought they were in a 50/50 position, end up getting a much worse deal. Tarun comes back from his interview expecting a fat check for $50 and finds out he's getting $10. Lewis: My brain just did a somersault. That is completely backwards and utterly brilliant. A rule that sounds like a benefit is actually a weapon for the other side. Joe: This is the core insight of game theory, and what the book illustrates so well. The game isn't just about the players' intentions; it's about how the structure of the game—the rules—shapes their behavior. God, or the devil, is in the details of the contract. It shows that you have to think not just one step ahead, but think about how a rule changes everyone else's incentives. Lewis: It makes you question every "standard" clause in a contract or every "normal" way of doing things. You start to see the hidden game being played underneath the obvious one. Joe: And that is the whole point.

Joe: So when you put it all together, you see the journey the book takes us on. It starts by showing us the danger of the simple 'business is war' game with the airline disaster. Then it hands us a powerful toolkit, the PARTS model, to become an architect of the game, like Nintendo did. And finally, it reveals the subtle, almost invisible power of the game's hidden rules, where a single clause can flip the outcome on its head. Lewis: The big takeaway for me is that you're never just playing the game that's handed to you. You're always, consciously or not, influencing it. The way you structure a deal, the way you talk about your competitors, the partners you choose to bring in—it all changes the nature of the game itself. Joe: That's the ultimate message. You are never just a player in a game; you are always a co-creator of the game. Your choices, your rules, your relationships—they all shape the board for everyone. It’s a tremendous responsibility, but also a tremendous opportunity. Lewis: It really makes you look at every negotiation, every partnership, completely differently. It’s not just about what you want, but how the structure of the deal affects everyone's behavior. It’s about designing the game for the outcome you want. Joe: Exactly. So the question for everyone listening is: what's one 'rule' in your professional life—a contract, a team norm, a way you always do things—that might be having an unintended consequence? Think about it. Is your "always be closing" sales rule accidentally destroying long-term trust? Is your team's rule about "no bad ideas in a brainstorm" actually preventing critical feedback? Lewis: That's a powerful question. And we'd love to hear what you come up with. We're always curious to hear how these ideas land in the real world. Find us on our socials and share your thoughts. It’s fascinating to see these theories in action. Joe: This is Aibrary, signing off.