What IBM, Toyota, and the NFL Can Teach Us About Making More Money by Inviting Competition

What do IBM-compatible computers, electric vehicles, and NFL expansion teams have in common?

According to new research from two University of Nebraska at Omaha (UNO) economists, they all offer examples of a counterintuitive business strategy: inviting more competition can actually make companies more profitable.

What’s new:

• “Network Externalities and Friendly Neighbors: When Firms Choose to Invite Competition“ by Dustin R. White, Ph.D., associate professor of economics and research director of UNO’s Koraleski Commerce and Applied Behavioral (CAB) Lab, and co-author Ben O. Smith, Ph.D., professor and chair of economics at UNO, was published in The American Economist.
• The paper proposes that firms may sometimes increase profits by lowering barriers to entry and encouraging competitors to join their industry.

Why it matters: Traditional economic theory assumes businesses want fewer competitors because competition reduces market share and pricing power. White and Smith argue that a larger ecosystem creates more value for everyone, and new entrants can help grow the entire market faster than they erode existing firms’ customer base.

Think about it like this: More electric vehicle manufacturers can lead to more charging stations. More compatible computer manufacturers can encourage more software development. More NFL teams can create more fan engagement and media interest. In each case, the market itself becomes more valuable as additional players join.

Zoom in: Smith and White’s research looked at three industries where well-established firms intentionally lowered barriers for potential competitors:

• Personal computers: Compaq licensed key compatibility improvements back to Microsoft, making it easier for other manufacturers to create IBM-compatible computers. That decision helped expand the overall market by encouraging software developers and hardware makers to support a common standard.
• Automotive: Tesla released electric vehicle patents in 2014 and Toyota followed by opening access to hydrogen fuel-cell patents in 2015. Both companies stood to benefit if more manufacturers entered their respective markets because greater adoption would encourage infrastructure growth such as charging and fueling stations.
• Professional sports: NFL owners have voted to expand the league by adding the Carolina Panthers and Jacksonville Jaguars in 1995, the re-established Cleveland Browns in 1999, and the Houston Texans in 2002. Conventional thinking would predict that more teams would dilute fan attention, television audiences, sponsorships, and talent. Instead, team profits rose roughly 22% in the first year after expansion, with gains continuing for years afterward and peaking at nearly 77% higher profits four years after expansion.

What’s next: Future research could explore additional industries where firms actively encourage competitors to enter the market and investigate how these strategies influence innovation, consumer adoption, and long-term economic growth.