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.
Similar content being viewed by others
Notes
Indeed, as Kogut (1988: 322) indicated in his influential survey on joint ventures, “Potentially, every model of imperfect competition is applicable to joint ventures.”
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”.
We thank the Editor for offering this insight.
Descriptive statistics of the segments by year and by industry are available upon request.
Using the eight-firm concentration ratio does not change the results.
References
Aghion, P., & Schankerman, M. 2004. On the welfare effects and political economy of competition-enhancing policies. The Economic Journal, 114 (498): 800–824.
Anand, B. N., & Khanna, T. 2000. Do firms learn to create value? The case of alliances. Strategic Management Journal, 21 (3): 295–316.
Balakrishnan, S., & Koza, M. P. 1993. Information asymmetry, adverse selection, and joint ventures. Journal of Economic Behavior & Organization, 20 (1): 99–117.
Barkema, H. G., Shenkar, O., Vermeulen, F., & Bell, J. H. J. 1997. Working abroad, working with others: How firms learn to operate international joint ventures. Academy of Management Journal, 40 (2): 426–442.
Beamish, P. W., & Banks, J. C. 1987. Equity joint ventures and the theory of the multinational enterprise. Journal of International Business Studies, 18 (2): 1–16.
Berg, S. V., & Friedman, P. 1977. Joint ventures, competition, and technological complementarities: Evidence from chemicals. Southern Economic Journal, 43 (3): 1330–1337.
Berg, S. V., & Friedman, P. 1979. Joint ventures in American industry, Part III: Public policy issues. Mergers and Acquisitions, 13 (Winter): 18–29.
Berg, S. V., & Friedman, P. 1981. Impacts of domestic joint ventures on industrial rates of return: A pooled cross-section analysis, 1964–1975. Review of Economics and Statistics, 63 (2): 293–298.
Bernstein, L. 1965. Joint ventures in the light of recent antitrust developments: Anticompetitive joint ventures. Antitrust Bulletin, 10 (1–2): 25–29.
Bresnahan, T., & Salop, S. 1986. Quantifying the competitive effects of production joint ventures. International Journal of Industrial Organization, 4 (2): 155–175.
Brodley, J. F. 1982. Joint ventures and antitrust policy. Harvard Law Review, 95 (7): 1521–1590.
Brouthers, K. D., & Hennart, J.-F. 2007. Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33 (3): 395–425.
Buckley, P. J., & Casson, M. 1996. An economic model of international joint venture strategy. Journal of International Business Studies, 27 (5): 849–876.
Buckley, P. J., Clegg, J., & Wang, C. 2002. The impact of inward FDI on the performance of Chinese manufacturing firms. Journal of International Business Studies, 33 (4): 637–655.
Caves, R. E. 1974. Multinational firms, competition, and productivity in host-country markets. Economica, 41 (162): 176–193.
Caves, R. E. 1996. Multinational enterprise and economic analysis, (2nd ed.). New York: Cambridge University Press.
Caves, R. E., & Mehra, S. K. 1986. Entry of foreign multinationals into US manufacturing industries. In M.E. Porter (Ed.) Competition in global industries: 449–482. Boston, MA: Harvard Business School Press.
Chen, M.-J., Smith, K. G., & Grimm, C. M. 1992. Action characteristics as predictors of competitive responses. Management Science, 38 (3): 439–455.
Chen, Z., & Ross, T. W. 2003. Cooperating upstream while competing downstream: A theory of input joint ventures. International Journal of Industrial Organization, 21 (3): 381–397.
Chung, W. 2001. Mode, size, and location of foreign direct investments and industry markups. Journal of Economic Behavior & Organization, 45 (2): 185–211.
Chung, W., Mitchell, W., & Yeung, B. 2003. Foreign direct investment and host country productivity: The American automotive component industry in the 1980s. Journal of International Business Studies, 34 (2): 199–218.
Contractor, F. J., & Lorange, P. 1988. Why should firms cooperate? The strategy and economics basis for cooperative ventures. In F.J. Contractor & P. Lorange (Eds) Cooperative strategies in international business: 3–30. New York: Lexington.
Cooper, R. W., & Ross, T. W. 2009. Sustaining cooperation with joint ventures. Journal of Law, Economics, & Organization, 25 (1): 31–54.
Dikova, D., & van Witteloostuijn, A. 2007. Foreign direct investment mode choice: Entry and establishment modes in transition economies. Journal of International Business Studies, 38 (6): 1013–1033.
Duncan Jr., J. L. 1982. Impacts of new entry and horizontal joint ventures on industrial rates of return. Review of Economics and Statistics, 64 (2): 339–342.
Dunning, J. H. 1995. Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business Studies, 26 (3): 461–491.
Dussauge, P., Garrette, B., & Mitchell, W. 2000. Learning from competing partners: Outcomes and durations of scale and link alliances in Europe, North America and Asia. Strategic Management Journal, 21 (2): 99–126.
Dussauge, P., Garrette, B., & Mitchell, W. 2004. Asymmetric performance: The market share impact of scale and link alliances in the global auto industry. Strategic Management Journal, 25 (7): 701–711.
Gatignon, H., & Anderson, E. 1988. The multinational corporation's degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation. Journal of Law, Economics, & Organization, 4 (2): 305–336.
Gomes-Casseres, B. 1996. The alliance revolution: The new shape of business rivalry. Cambridge, MA: Harvard University Press.
Grant, R. M., & Baden-Fuller, C. 2004. A knowledge accessing theory of strategic alliances. Journal of Management Studies, 41 (1): 61–84.
Gugler, K., & Siebert, R. 2007. Market power versus efficiency effects of mergers and research joint ventures: Evidence from the semiconductor industry. Review of Economics and Statistics, 89 (4): 645–659.
Hall, B. H. 1993. The value of intangible corporate assets: An empirical study of the components of Tobin's q, Working Paper No. 93-207, Institute of Business and Economics Research, University of California at Berkeley.
Hall, B. H., Griliches, Z., & Hausman, J. A. 1986. Patents and R&D: Is there a lag? International Economic Review, 27 (2): 265–283.
Hamel, G. 1991. Competition for competence and inter-partner learning within international strategic alliances. Strategic Management Journal, 12 (S1): 83–103.
Hennart, J.-F. 1988. A transaction costs theory of equity joint ventures. Strategic Management Journal, 9 (4): 361–374.
Hennart, J.-F. 1991. The transaction costs theory of joint ventures: An empirical study of Japanese subsidiaries in the United States. Management Science, 37 (4): 483–497.
Hennart, J.-F., & Reddy, S. 1997. The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic Management Journal, 18 (1): 1–12.
Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40 (4): 767–798.
Hsiao, C. 1986. Analysis of panel data. New York: Cambridge University Press.
Inkpen, A. C., & Beamish, P. W. 1997. Knowledge, bargaining power, and the instability of international joint ventures. Academy of Management Review, 22 (1): 177–202.
Inkpen, A. C., & Currall, S. C. 2004. The coevolution of trust, control, and learning in joint ventures. Organization Science, 15 (5): 586–599.
Jorde, T. M., & Teece, D. J. 1990. Innovation and cooperation: Implications for antitrust. Journal of Economic Perspectives, 4 (3): 75–96.
Katz, M. L., & Ordover, J. A. 1990. R&D cooperation and competition. Brookings Papers on Economic Activity, Microeconomics, 1990: 137–203.
Khanna, T., Gulati, R., & Nohria, N. 1998. The dynamics of learning alliances: competition, cooperation and relative scope. Strategic Management Journal, 19 (3): 193–210.
Kogut, B. 1988. Joint ventures: Theoretical and empirical perspectives. Strategic Management Journal, 9 (4): 319–332.
Kogut, B. 1989. The stability of joint ventures, reciprocity and competitive rivalry. Journal of Industrial Economics, 38 (2): 183–198.
Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.
Kuhn, T. 1970. The structure of scientific revolutions, (2nd ed.). Chicago, IL: University of Chicago Press.
Kwoka, J. E. 1992. The output and profit effects of horizontal joint ventures. Journal of Industrial Economics, 40 (3): 325–338.
Lane, P. J., & Lubatkin, M. 1998. Relative absorptive capacity and interorganizational learning. Strategic Management Journal, 19 (5): 461–477.
Li, J., & Zhou, C. 2008. Dual-edged tools of trade: How international joint ventures help and hinder capability building of Chinese firms. Journal of World Business, 43 (4): 463–474.
Liu, X., Siler, P., Wang, C., & Wei, Y. 2000. Productivity spillovers from foreign direct investment: Evidence from UK industry level panel data. Journal of International Business Studies, 31 (3): 407–425.
Lyles, M. A., & Salk, J. E. 1996. Knowledge acquisition from foreign parents in international joint ventures: An empirical examination in the Hungarian context. Journal of International Business Studies, 27 (5): 877–904.
McGahan, A. M. 1999. The performance of US corporations: 1981–1994. Journal of Industrial Economics, 47 (4): 373–398.
McGahan, A. M., & Porter, M. E. 1997. How much does industry matter, really? Strategic Management Journal, 18 (S1): 15–30.
Mead, W. J. 1967. The competitive significance of joint ventures. Antitrust Bulletin, 12 (3): 819–849.
Morck, R., & Yeung, B. 1991. Why investors value multinationality. Journal of Business, 64 (2): 165–187.
Nelson, R. 1982. Government stimulus of technological progress: Lessons from American history. In R. Nelson (Ed.) Government and technical progress: A cross-industry analysis: 451–482. New York: Pergamon.
Oxley, J. E., Sampson, R. C., & Silverman, B. S. 2009. Arms race or détente? How interfirm alliance announcements change the stock market valuation of rivals. Management Science, 55 (8): 1321–1337.
Peng, M. W., Zhou, Y., & York, A. S. 2006. Behind make or buy decisions in export strategy: A replication and extension of Trabold. Journal of World Business, 41 (3): 289–300.
Peng, M. W., Wang, D. Y. L., & Jiang, Y. 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39 (5): 920–936.
Pfeffer, J., & Nowak, P. 1976. Patterns of joint venture activity: Implications for antitrust policy. Antitrust Bulletin, 21 (2): 315–339.
Popper, K. 1959. The logic of scientific discovery. London: Hutchison.
Porter, M. E. 1980. Competitive strategy. New York: Free Press.
Porter, M. E. 1985. Competitive advantage. New York: Free Press.
Porter, M. E., & Fuller, M. B. 1986. Coalitions and global strategy. In M.E. Porter (Ed.) Competition in global industries: 315–344. Boston, MA: Harvard Business School Press.
Reuer, J. J. 2000. Parent firm performance across international joint venture life-cycle stages. Journal of International Business Studies, 31 (1): 1–20.
Reuer, J. J., & Koza, M. P. 2000. Asymmetric information and joint venture performance: Theory and evidence for domestic and international joint ventures. Strategic Management Journal, 21 (1): 81–88.
Scherer, F. M., & Ross, D. 1990. Industrial market structure and economic performance, (3rd ed.). Boston, MA: Houghton Mifflin.
Schmalensee, R., & Willig, R. D. 1989. Handbook of industrial organization, Vol. 1. Amsterdam: North-Holland.
Shapiro, C., & Willig, R. D. 1990. On the antitrust treatment of production joint ventures. Journal of Economic Perspectives, 4 (3): 113–130.
Silverman, B. S., & Baum, J. A. C. 2002. Alliance-based competitive dynamics. Academy of Management Journal, 45 (4): 791–817.
Singh, K., Ang, S. H., & Leong, S. M. 2003. Increasing replication for knowledge accumulation in strategy research. Journal of Management, 29 (4): 533–549.
Stuckey, A. 1983. Vertical integration and joint ventures in the aluminum industry. Cambridge, MA: Harvard University Press.
Tirole, J. 1988. The theory of industrial organization. Cambridge, MA: MIT Press.
Tong, T. W., Reuer, J. J., & Peng, M. W. 2008. International joint ventures and the value of growth options. Academy of Management Journal, 51 (5): 1014–1029.
Tsang, E. W. K. 2002. Acquiring knowledge by foreign partners from international joint ventures in a transition economy: Learning-by-doing and learning myopia. Strategic Management Journal, 23 (9): 835–854.
Vickers, J. 1985. Pre-emptive patenting, joint ventures, and the persistence of oligopoly. International Journal of Industrial Organization, 3 (3): 261–273.
Wang, P., Tong, T. W., & Koh, C.-P. 2004. An integrated model of knowledge transfer from MNC parent to China subsidiary. Journal of World Business, 39 (2): 168–182.
Werden, G. J. 1998. Antitrust analysis of joint ventures: An overview. Antitrust Law Journal, 66 (3): 701–735.
Wooldridge, J. M. 2002. Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.
Yan, A., & Gray, B. 1994. Bargaining power, management control and performance in United States-China joint ventures: A comparative case study. Academy of Management Journal, 37 (6): 1478–1517.
Yin, X., & Shanley, M. 2008. Industry determinants of the “merger versus alliance” decision. Academy of Management Review, 33 (2): 473–491.
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.
Author information
Authors and Affiliations
Additional information
Accepted by Arjen van Witteloostuijn, Area Editor, 17 September 2009. This paper has been with the authors for two revisions.
Rights and permissions
About this article
Cite this article
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
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1057/jibs.2010.2