Under-provision of inputs in joint ventures with market power

Ping LIN, Kamal SAGGI

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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.
Original languageEnglish
Pages (from-to)189-196
Number of pages8
JournalBulletin of Economic Research
Volume54
Issue number2
DOIs
Publication statusPublished - 1 Apr 2002

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Market power
Joint ventures
Negative externalities

Cite this

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Under-provision of inputs in joint ventures with market power. / LIN, Ping; SAGGI, Kamal.

In: Bulletin of Economic Research, Vol. 54, No. 2, 01.04.2002, p. 189-196.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - 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.

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