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Collaborate or Consolidate: Assessing the Competitive Effects of Production Joint Ventures

21 Pages Posted: 7 May 2014 Last revised: 6 Jul 2017

Nicolas Aguelakakis

Washington University in St. Louis

Aleksandr Yankelevich

Michigan State University - Quello Center

Date Written: July 5, 2017

Abstract

We analyze a symmetric joint venture in which firms facing external competition collaborate in input production. Under standard regularity conditions, the collaboration leads to higher profits than a horizontal merger, whereas the effect on prices and quantities depends on the form of downstream competition. When firms compete in prices, downstream prices for all firms are higher following a symmetric joint venture than following a merger. The reverse result may obtain under quantity competition. In light of our results regarding profits, we provide reasons why firms might still wish to merge: imperfect information, cost synergies, and organizational asymmetries.

Keywords: Production Joint Venture, Collaboration Among Competitors, Horizontal Merger, Bertrand Oligopoly, Cournot Oligopoly

JEL Classification: L13, L23, L42

Suggested Citation

Aguelakakis, Nicolas and Yankelevich, Aleksandr, Collaborate or Consolidate: Assessing the Competitive Effects of Production Joint Ventures (July 5, 2017). Available at SSRN: https://ssrn.com/abstract=2432916 or http://dx.doi.org/10.2139/ssrn.2432916

Nicolas Aguelakakis

Washington University in St. Louis ( email )

One Brookings Drive
Saint Louis, MO 63130-4899
United States

Aleksandr Yankelevich (Contact Author)

Michigan State University - Quello Center ( email )

406 Communication Arts Building
404 Wilson Road
East Lansing, MI 48824-1212
United States

HOME PAGE: http://aleksyankelevich.com/

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