Thursday, July 3, 2014
Nicolas Aguelakakis, Washington University in Saint Louis and Aleksandr Yankelevich, Federal Communications Commission discuss Collaborate or Consolidate: Assessing the Competitive Effects of Production Joint Ventures.
ABSTRACT: We analyze a symmetric joint venture in which two firms facing external competition collaborate in input production. Under certain regularity conditions, such a collaboration leads to higher profits than a horizontal merger between these two firms, 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 joint venture than those following a horizontal merger. The reverse result may obtain when firms compete in quantities. Nevertheless, prices and profits remain larger in a Cournot equilibrium than in a Bertrand equilibrium.