Abstract: It is very important but difficult to resolve the conflict between the water demand and supply in water resources management in water basins with water shortages. This study is aimed at quantifying the competition and cooperation relationship of water utilization to provide a new way to assess and optimize the relationship between the water demand and supply in water shortage basins. Herein, the excludability and non-excludability of water resources are analyzed. The competition and cooperation relationship of water utilization is then defined, and ways to quantify the degrees of competition and of cooperation are developed. Targets for the optimization of the water demand process are proposed to reduce the degree of competition and increase the degree of cooperation using the Yellow River basin as a case study. The results show that a strong competition relationship existed in reaches below Lanzhou, while the degree of cooperation was small due to an instream water shortage in the 2017 flood season. It is predicated that the degree of competition will be high in the reach from Lanzhou to Hekouzhen and the reach below Huayuankou in 2030, while inter-basin water-transfer projects can effectively reduce the degree of competition. The degree of cooperation must be strengthened by considering the ecological function of high-flow events in the flood season and the water demand of sediment transport in the non-flood season when managing water resources in the Yellow River basin. If a proportion of sediment transport water demand could be moved to the non-flood season from the flood season, the degree of competition could be reduced and that of cooperation increased.