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Competitive consequences of interfirm collaboration: How joint ventures shape industry profitability

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Abstract

Recent international business research on international joint ventures focuses on how firms can use such ventures for knowledge access and learning to enhance their competitiveness, thereby increasing competition in the industry. By contrast, research in industrial organization economics has observed that firms can also use joint ventures in various ways to attenuate competition. In this paper, we join these two streams of research to investigate the conditions under which joint ventures reduce or enhance competition by empirically testing the effects of different types of joint ventures on industry profitability. Our results suggest that joint ventures can be pro-competitive or anti-competitive, depending on whether or not they are formed between competing firms, represent foreign market entry, and operate in relatively concentrated industries. Our paper shows the importance of adopting a contingent approach to evaluating the competitive implications of joint ventures, and it also points to the value of reinvigorating international business research on the competitive context and consequences of interfirm collaboration.

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Notes

  1. Indeed, as Kogut (1988: 322) indicated in his influential survey on joint ventures, “Potentially, every model of imperfect competition is applicable to joint ventures.”

  2. In one of the first studies of joint ventures’ competitive implications, Berg and Friedman (1979: 26) indicated that research that also incorporates international joint ventures is “potentially more important”.

  3. We thank the Editor for offering this insight.

  4. Descriptive statistics of the segments by year and by industry are available upon request.

  5. Using the eight-firm concentration ratio does not change the results.

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Acknowledgements

An earlier version of this paper was presented at the Academy of International Business Annual Conference in Beijing in 2006. We thank Arjen van Witteloostuijn (editor) and the JIBS anonymous reviewers for their valuable comments. We also thank Wen-cheng Hsieh for providing excellent research assistance.

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Accepted by Arjen van Witteloostuijn, Area Editor, 17 September 2009. This paper has been with the authors for two revisions.

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Tong, T., Reuer, J. Competitive consequences of interfirm collaboration: How joint ventures shape industry profitability. J Int Bus Stud 41, 1056–1073 (2010). https://doi.org/10.1057/jibs.2010.2

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