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Under–provision of Inputs in Joint Ventures with Market Power
Author(s) -
Lin Ping,
Saggi Kamal
Publication year - 2002
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00147
Subject(s) - externality , microeconomics , economics , market power , joint (building) , joint venture , supply and demand , power (physics) , industrial organization , commerce , monopoly , architectural engineering , physics , quantum mechanics , engineering
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.