Under-Provision of Inputs in Joint Ventures with Market Power

8 Pages Posted: 14 Nov 2002

See all articles by Ping Lin

Ping Lin

Lingnan University - Department of Economics

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Abstract

A joint venture with market power benefits from restricting its output which, in turn, requires the partners to restrict the supply of their inputs. However, since each partner benefits only partially from restricting its input, both over-supply their inputs from the viewpoint of the optimal use of market power. We show that this pecuniary negative externality in the partners' input decisions mitigates the standard under-provision problem that arises in joint ventures. We also show that the degree of this problem declines as demand becomes less elastic.

Suggested Citation

Lin, Ping and Saggi, Kamal, Under-Provision of Inputs in Joint Ventures with Market Power. Available at SSRN: https://ssrn.com/abstract=308866

Ping Lin (Contact Author)

Lingnan University - Department of Economics ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China
(852)2616 7203 (Phone)
(852)2891 7940 (Fax)

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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