Compete or cooperate: Intensity, dynamics, and optimal strategies

This research explores rival firms’ optimal strategies when engaging in market competition. We assume that customer demand is subject to customer sensitivity to the competitors’ prices and service levels. First, we develop coopetition models under a symmetric case where there is identical service-investment efficiency between two firms. We then extend our analysis to an asymmetric case in which the two firms have different service-investment efficiencies. Our results show that the optimal strategic decisions regarding whether to compete or cooperate and how to cooperate depend on the intensity of the market competition in which the firms are engaged. The results also indicate that coopetition changes the dynamics of the competition and cooperation between the rival firms. More specifically, on the one hand, coopetition eases competition intensity in the cooperating area, for example, price or service; on the other hand, it increases competition intensity in the non-cooperating area. Decision frameworks are proposed that enable firms to make optimal strategic decisions on coopetition under various market conditions.