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The world of AI, many people believe, is a little bit like the Wild West right now, with each company trying to get the
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advantage on the other. But now you are seeing some executives, Microsoft, Satya, Nadella being the latest, talk about maybe
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a slight pullback on the race, and one that will not just have all the companies
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thinking about making sure they have the best AI product. The competition seems to be going past the
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level of healthy rivalry and into a level of conflict that may not be a good thing in the end.
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So what has to happen when competition goes too far? Henning Piazunka is Associate Professor of Management here
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at the Wharton School and has looked at this area. Henning, always great to talk to you.
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It's been a while. Thanks for a few moments today. Good to see you, Dan. Thanks for having me.
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I guess where we are right now, what's going on in AI is kind of this best case scenario to understand these potential concerns
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in what we're seeing in the level of competition going on between these companies.
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Right. So, you know, like, nobody really knows how much you should invest, right?
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Like, you know, it's going to be a big market, but the question is really how much of a market it's going to be.
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Now, you see, like, even without any kind of personal rivalries and stuff like that, it's
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already very difficult to determine how much you should invest. This could be like a winner-takes-all
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market. And so you almost have like a rational overinvestment, so to speak, right?
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Because everybody's competing to be the winner in this market. The other thing you have to take into
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account, what's absorptive capacity? You see, you have to actually invest to learn from others, right?
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So even if you kind of want to be a good second player, you still have to invest tremendously to actually understand what the
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current leader in this race is doing. And then what you're pointing out, you know,
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like, there may also be like personal aspects about it, right? I want to have the best LLM.
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I want to have the best AI. I want to be the first in space, right? So very often what research shows, competition can
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actually become personal. So what are the elements then that separate, I think, what we would believe to be
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healthy competition and what could be a, quote -unquote, destructive rivalry? So then I give you like a project
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I'm currently working on, which I really kind of, what I've enjoyed tremendously, that gives you
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just a feeling for how this kind of sometimes becomes irrational, okay? So we had a look at who actually
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firms consider to be their competitors. And that's obviously a very kind of critical
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choice, right? Like, you know, like how much market overlap do you have today? How much market overlap do you expect in
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the future? Industries might converge and stuff like this. And so there are lots of kind of
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things you have to take into account. And we wondered, okay, how do managers deal
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with this? Okay. And now here comes the kicker then. So what we find is that if the
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CEO went to college, where the CEO of the other company went to college, where they
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had a college rivalry, they are more likely to consider each other competitors. So imagine you have one company where the
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CEO went to Duke and the other CEO went to UNC, all right? Now this has absolutely nothing to do, obviously,
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with the competition where they are today, but nevertheless, they see each other more as competitors.
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And so we outlined this, like we're working on this and we have fleshed this out
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and like tons of robustness checks and the effect hold. So it's a very strong effect that clearly
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shows that there's an amount of, yeah, an element of irrationality in all of this, I
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would say. So how do leaders within companies then deal with these components when maybe collaboration might be
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the better option? So this is, you see, like the way you frame it, right, it's not an either
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or. It can actually be both, right? Sometimes it's competition, sometimes it's competition, and sometimes
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it's collaboration, right? I give you, you see, like one thing that I find very interesting, very often it's
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not particularly clear, even within top management teams of one company, right? Like imagine I ask you, Dan, like, is
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NYU Stern a competitor of Wharton or is it a collaborator, right? And you could make the case like, well,
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it's a competitor because we are like competing for MBA students and stuff, right?
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But you could also say like, no, they're great collaborators, right? We have lots of professors who actually work
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with fantastic NYU faculty. We have hired from NYU Stern, NYU Stern has hired from us.
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So it's actually rather complicated to like, oh, it's just competition or it's just collaboration.
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In many ways, it can often be both, right? Okay. And one thing that research actually finds that
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I've shown in a paper together with Fritjof Stacherenki a few years ago is one thing,
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it's actually not particularly important that you're not competing. What's super important is that you are aligned
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in your understanding of whether you are also competing when you collaborate or whether you're not
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competing. Okay. But you really want to be crystal clear about whether there's also competition going on.
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Do those lines get blurred sometimes in maybe not understanding truly what is competition and what
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is rivalry? All the time, Dan. What we find all the time is that there's misalignment.
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So what one firm would see the other as a competitor, but the other would not see the other as a competitor.
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And this is like completely bizarre outcomes, right? Like sometimes you have these collaboration meetings where
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from one firm, two kind of folks walk into the meetings and from the other firm,
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two folks walk in, but with four lawyers. And then in that moment, you're like, oh,
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you think about this very, very differently than we thought about this. Okay. And it's typically when these kinds of perceptions
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are not aligned, that is really when these kinds of relationships tend to fall apart.
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So you mentioned Duke and North Carolina, and obviously a lot of that rivalry occurs in
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the world of sports. I think a lot of people might say that the world of sports may be able
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to give us a little bit of a better understanding of rivalry versus collaboration, correct?
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Look, in many ways, this is more and more the focus, I will say, at Wharton. Like, we have been looking at this.
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I've been looking a lot of this in my research. I've looked at chess. I have multiple papers on Formula One.
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I have papers on NBA basketball. I have papers on soccer. If any of our listeners here is interested
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in it, don't hesitate. Drop me an email. I'm happy to kind of send all of these papers to you.
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You see, I think there's a tremendous amount we can learn from sports, sometimes about kind
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of the micro-interactions, right? Like, how do you compete and how do you collaborate?
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Or how do these things go off the rails, right? But you see, I would actually go even
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broader than that. You see, in some ways, we can actually learn kind of with respect to politics, like
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in some ways, sport governance is actually superior to like state governance at this point, right?
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You see, like, so we actually have very strong norms that are enforced. Competition is actually rather healthy in sports if
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you compare it to other parts of the market. So I'm, you see, you need to be very aware of the boundary competition.
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Business is not really like sports, right? You see, like, sports has very well-defined
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kind of rules and stuff like this, and business is very often not like that. So you need to understand the boundaries.
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But if you understand the boundaries, you can learn a tremendous amount from it.
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So is then the level of competition we're seeing right now increasing at a much rapider
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pace than we've seen maybe in decades past because of kind of everything that is going
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on in our culture right now? You know, Dan, this is a very interesting question.
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You see, like, I think no matter at which point you go back in time, there's been a book, I believe it's been published
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in 1994, called Hypercompetition, where people basically said like, hey, competition has been so incredibly intense,
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right? This is by Richard Devaney, who used to be at Wharton like a few years ago.
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And so I think we are always complaining about like, oh, competition has gotten so intense
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and competition has gotten so intense. I think it's actually very difficult to kind
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of compare this across time. It does feel like a very intense moment where there's a lot at stake, right?
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You see, I think what has really become more common, and I think that explains it,
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the kind of tremendous dominance of technology company, and these markets are very often the winner
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takes all or at least the winner takes most. And whenever you have like winner takes most
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or winner takes all markets, the competition tends to become very, very intense.
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Well, and I think it's also interesting that when you look at artificial intelligence right now,
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there is obviously the race that is going on with the companies like Anthropic and OpenAI.
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But then you can even go down the chain a little bit and look at the energy infrastructure component.
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And there's competition going on within those companies to be able to gain the space, you
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know, gain those business partnerships with those companies. And so that level of competition just keeps
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going down the food chain. Look, this is something I think people very often kind of underestimate.
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Ron Aitner, an alumni of our PhD program and these days full professor at Dartmouth has
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actually kind of done a lot of research on this, right? When you think about competition, you really cannot
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just think about like one layer of the ecosystem or one layer of the vertical infrastructure.
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What you really have to do is to think about the whole ecosystem. How do you actually create value across the
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complete stack? And so sometimes what you see, sometimes you can have these horizontal competition, but sometimes you
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can have stacks competing against one another, which are really organized in a different manner.
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I'll finish up with this. Is there something then that would kind of, that needs to occur, that would make collaboration
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stand out as a better option in many cases? Or is it just kind of a dynamic of each situation as it plays out?
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You know, Henry Kissinger had this famous sentence, right? Like in international politics, they're really not like
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friends or like they're always just interests. I think what always, what firms always need
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to figure out is where are the spots on which can you collaborate? So we shouldn't think of a world that's
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like, oh, there's competition and there's collaboration. I think this is the mistake that very
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often people do. So then like, oh, it's either competition or it's collaboration.
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And in most cases, it's really both. Okay. Look, this then is also true in all our personal lives, right?
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Like you see, like I actually go with my friends to the same school class, high school class or college, and we are collaborating
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on projects and stuff like this. But at the same time, we are competing for dates and we are competing for becoming
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valedictorian and stuff like this, right? So competition and collaboration just exist.
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And I think the winners will be those who actually navigate that tension the very best
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to understand when do we collaborate, on what do we collaborate, when do we compete, how
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do we compete without actually then kind of undermining the collaboration. So there's never going to be like, it's
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either that or it's that, but it's always a careful navigation of the two and hopefully
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then to find lots of spaces where we can collaborate and then compete effectively.
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Henning, great to talk to you again. Thanks very much for your time. All the best.
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Wonderful. Thank you so much. Good to see you. Good to see you as well. Henning Piasunke, who is Associate Professor of Management
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here at the Wharton School.