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23 May 2011

Cooperation vs. Competition on the Business-to-Business Level

A person who direct messaged me on Twitter suggested I address cooperation and competition on the business-to-business level (B2B). Which is more profitable?

Generally, cooperation will tend to be a better business relationship than competition on just about any level, business or individual. We are social creatures, so we join groups to cooperate with others for mutual benefit. People will tend toward cooperation.

However, in reality, sometimes people cannot cooperate as they would like. Rules, policies and regulations sometimes make it wrong, illegal or expensive. For instance, governments do not allow businesses to cooperate in fixing prices and setting markets.

Where’s the proof that B2B cooperation is profitable? Look at the free market. The mere fact that governments have to pass laws preventing cooperation among businesses indicates that businesses can find it extremely profitable. If cooperation weren’t profitable, would we have to pass laws to prevent it? Furthermore, just look at the legal forms of cooperation in the forms of trade associations and lobbies. Would such cooperation occur if it weren’t profitable?

When businesses engage in competition, it’s like war: uncertain and expensive. Cooperation provides certainty and cost-containment. However, governments don’t allow this because it’s bad for consumers. This is similar to the Roman Emperor who forced two gladiators into mortal combat so he can entertain the crowd. What would happen if the two cooperated and did not fight? That’s why the Emperor had to say both would die if they didn’t.

The whole point of this analogy is to demonstrate that sometimes it’s very difficult to see the profitability of cooperation because many times we establish rules, rewards and penalties to ensure competition rather than cooperation. It becomes even more difficult when we benefit from the competition of others. The difference is often our perspective.

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