Antitrust agencies and courts have expressed concerns that joint ventures and strategic alliances between firms that compete in other markets might serve to reduce the vigor of their competition. For this reason, a number of competition agencies have been developing guidelines regarding how they will review agreements between competitors or potential competitors. This talk will consider some of the economic research that has contributed to our understanding of how joint ventures and strategic alliances – which may in most circumstances be competitively benign or even pro-competitive – may in some cases be used to reduce the competitive tension between firms. Some of this work focuses on how the partners can use joint control of a common input to influence their "independent" decisions on output quantities and prices. Another approach – which gets more attention here -- focuses on how the coordinated actions of competitors in the joint venture could influence competitive decision-making by altering firms’ beliefs about how rivals will compete. A joint venture in one market may provide a credible punishment mechanism for firms colluding in another market. The joint venture may also provide a vehicle for the transmission, between players, of information in a way that helps cooperative types find each other and collude in other markets.
Thomas W. Ross (University of British Columbia)