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Profit Share and Partner Choice in International Joint Ventures

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  • Litao Zhong
  • Sajal Lahiri

Abstract

This paper suggests a new approach to the determination of profit allocation between the partners in international joint ventures (IJVs). We also examine the issue of partnership choice. The foreign firm gives a large share of profits to its partner and in return receives a better tax treatment from the host government. Under linearity of costs and demand functions, it would choose the more efficient domestic firm as an IJV partner, and the domestic firms would happily accept the offer of partnership from the foreign firm. However, the host government, under certain situations, may persuade the foreign firm, by a suitable lump-sum transfer, to form a partnership with the less efficient firm. Copyright © 2010 Blackwell Publishing Ltd.

Suggested Citation

  • Litao Zhong & Sajal Lahiri, 2010. "Profit Share and Partner Choice in International Joint Ventures," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 552-561, August.
  • Handle: RePEc:bla:reviec:v:18:y:2010:i:3:p:552-561
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    References listed on IDEAS

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    1. Long, Ngo Van & Soubeyran, Antoine, 2001. "Cost Manipulation Games in Oligopoly, with Costs of Manipulating," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 505-533, May.
    2. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
    3. Darrough, Masako N & Stoughton, Neal M, 1989. "A Bargaining Approach to Profit Sharing in Joint Ventures," The Journal of Business, University of Chicago Press, vol. 62(2), pages 237-270, April.
    4. Elizabeth Asiedu & Hadi Salehi Esfahani, 2001. "Ownership Structure In Foreign Direct Investment Projects," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 647-662, November.
    5. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    6. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    7. Jan Svejnar & Stephen C. Smith, 1984. "The Economics of Joint Ventures in Less Developed Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 149-167.
    8. Al-Saadon, Yousef & Das, Satya P., 1996. "Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 345-364, May.
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    Cited by:

    1. Sanjo, Yasuo, 2013. "Country size and tax policy for international joint ventures in an integrated market," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 37-53.
    2. Yamada, Mai, 2016. "The Optimal Trading Partner for an Upstream Monopolist," MPRA Paper 70325, University Library of Munich, Germany.

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