High-Cost Domestic Joint Ventures and International Competition: Do Domestic Firms Gain?
This paper develops the idea that, when markets are imperfectly competitive, final-good producers may gain from a production joint venture (PJV) that produces part of their input requirements even though the PJV's marginal cost exceeds the input's market price. Production by the PJV lowers the market price of the input and this can raise final-good profits sufficiently to make the PJV worthwhile. Also, use of a joint venture internalizes the positive externality from a lower input price. These results are motivated by a setting in which domestic firms are dependent on foreign oligopolistic suppliers for a key input. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 37 (1996)
Issue (Month): 2 (May)
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