Co-op level up?

Yes but you only get to see the movie of the character you select first if you Co-op in Arcade so for example is you choose Jin and someone else is another character only Jin's movie will be unlocked.

But if you Co-op it is alot faster to grind levels instead of on your own, also doing it in Ghost battle is more useful as Arcade doesen't go past 1st dan despite if you are ranked higher than the 9 opponents selected.
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My PBR friend code is: 2105-7453-9147

Sadly the word Co-op in fighting games means two of you against two of someone else, there is no way to implement two can be on the same team with two different controllers as player 1 will always have to pick 1 or 2 on their team and use them together and the other player 2 will do the same.

Now if a game had a Co-op where you could be the same team, kinda like having two characters on the screen against the computer that would be sweet.

I still don't get used to the Tag function but in the end Arcade is alot harder with 1 player, currently only feel like using a Tag team on Ghost Mode as Arcade only lets the 1st player see the ending and not the 2nd.
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My PBR friend code is: 2105-7453-9147