Joint Venture Breakup and the Exploration-Exploitation Trade-off

44 Pages Posted: 2 Dec 2009 Last revised: 21 Jan 2010

See all articles by Antoine Soubeyran

Antoine Soubeyran

University of Angers - Research Group in Quantitative Saving (GREQAM)

Raphael Soubeyran

French National Institute for Agricultural Research (INRA) - Research Center in Montpellier; INRA-LAMETA

Ngo Van Long

McGill University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 1, 2009

Abstract

This paper explores the effect of a potential joint-venture breakup on the level of technology transfer in a set-up with exploration-exploitation trade-offs in the presence of time compression costs. We consider a joint-venture relationship between a technologically advanced multinational firm and a local firm operating in a developing economy where the ability to enforce contracts is weak, and the local firm can quit without penalties. The multinational firm has to consider the advantages and disadvantages of an intensive transfer of technology versus an extensive one. In response to the breakup incentives, the multinational firm reduces the intensity (lowering the pace) and opts for a more extensive transfer mode (longer duration of transfer), compared to the first best. The scheme is supported by a flow of side payments to encourage the local firm to stay longer. We show that a fall in time compression costs may increase or decrease the intensity of technology transfer, both in the first-best and in the second-best scenarios, depending on the nature of the saving in time-compression costs.

Keywords: Technology transfer, joint venture, absorptive capacity, time-compression

JEL Classification: F23, D23, O33, O34

Suggested Citation

Soubeyran, Antoine and Soubeyran, Raphael and Van Long, Ngo, Joint Venture Breakup and the Exploration-Exploitation Trade-off (December 1, 2009). FEEM Working Paper No. 102.2009, Available at SSRN: https://ssrn.com/abstract=1516236 or http://dx.doi.org/10.2139/ssrn.1516236

Antoine Soubeyran

University of Angers - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France
+33 442 935 984 (Phone)
+33 442 930 968 (Fax)

Raphael Soubeyran (Contact Author)

French National Institute for Agricultural Research (INRA) - Research Center in Montpellier ( email )

2 place Viala
Montpellier, Cedex 01 34060
FRANCE

INRA-LAMETA ( email )

2 place viala
Montpellier, 34060
France

Ngo Van Long

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
Canada
514-398-4850 (Phone)
514-398-4938 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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