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 / Spring 2007 / Issue 46(originally published by Booz & Company)


The Game Maven of New Haven

Consider Holland Sweetener Company — a case that Nalebuff teaches at Yale’s School of Management. In the late 1980s, Holland Sweetener was looking to take a swing at Monsanto’s NutraSweet business. Monsanto’s patent on aspartame, the sweetener in Diet Coke and Diet Pepsi, was set to expire in 1992, and Holland Sweetener invested $50 million to build a plant and enter the aspartame “game.”

But Holland Sweetener was playing the wrong game. Rather than embrace a second supplier and bring it into the business, Coke and Pepsi used Holland’s entry into the market to squeeze Monsanto for a $200 million savings on NutraSweet. “And what did Holland get? Diet Squirt,” Nalebuff says. “I want to argue that  that was completely predictable. Coke and Pepsi didn’t want to switch; they wanted to use Holland to get a lower price.”

So what does game theory suggest Holland Sweetener should have done? “They should have gotten paid for changing the game rather than playing the game,” says Nalebuff. “They should have said to Coke and Pepsi, ‘Before we build this plant, give us a contract. And if you are not willing to give us a contract now, why in the world would you be willing to give us a contract after we build the plant?’”

Holland Sweetener also might have asked Coke and Pepsi to help pay for the cost of the plant. Or even bargained for a percentage of the savings that the new plant would make possible. “They failed to see that they had a lousy product to sell in aspartame, but they were a monopolist in selling competition,” Nalebuff says. In short, selling competition — offering Coke and Pepsi new leverage in negotiating deals for its sweetener — was the game Holland Sweetener should have been playing. “Companies are too quick to give away competition,” Nalebuff says. “I want to suggest that competition is valuable. When I take on this activity I know what’s in it for you, but I need to understand what’s in it for me. I want to make sure that I am going to be rewarded for changing the game.”

After the plant opened in the late 1980s, Holland Sweetener lost so much money that the company’s executives decided to exit the aspartame game. But as a last-ditch move, says Nalebuff, “Holland Sweetener went to Coke and Pepsi and said, ‘Guys, we’re about to leave, unless you give us a contract.’ They used that threat to exit to expand the plant. So although they didn’t get paid to play, they got paid to stay.”

For Nalebuff, a company must understand the nature of its leverage in order to understand how to play or change the game. “Before you go through the expense and time, you need to discover in advance how much they value you. When you discover that they don’t value you, you need to do something else. And when you discover that they do value you, then you can change the game to make sure you are going to get more of
that business.”

Perhaps the ultimate expression of Nalebuff’s drive to popularize his ideas was an episode of the ABC program Primetime that he hosted in March 2006. In one example, six pairs of people, total strangers, had to find one another somewhere in the five boroughs of New York City. By thinking about what the other pair was thinking, they all found each other within hours. Now, Nalebuff and Yale Law School Professor Ian Ayres (the coauthor of Why Not?) are developing a reality television show based on their book about driving innovation. It’s another attempt to reach as broad an audience as possible, but the goal isn’t just ratings, it’s change. “This is reality television with a higher purpose: to improve the world,” Nalebuff says. In each episode, the swashbuckling professors will set out to solve a real-world problem. Viewers will see their process of problem solving, and the implementation of the idea in real time.

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  1. Adam M. Brandenburger and Barry J. Nalebuff, Co-opetition: A Revolutionary Mind-set That Combines Competition and Cooperation. The Game Theory Strategy That’s Changing the Game of Business (Doubleday, 1996): One competitor doesn’t have to fail for the other one to win.
  2. Avinash K. Dixit and Barry J. Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (W.W. Norton, 1991): How to apply game theory to problems of all sorts, including those in business.
  3. Barry Nalebuff and Ian Ayres, Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small (Harvard Business School Press, 2003): A guide to automating the process of innovation.
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