A Note on Joint Ventures in Which Firms Contribute Complementary Inputs

Louis Silvia
Working Paper:

This note compares the efficiency of a joint venture with supply, output royalty and lump sum arrangements in the context of firms contributing complementary inputs to some project. In a world of certainty and no transactions costs, input complementarities would not be a sufficient condition for firms to prefer a joint venture over other kinds of contracts. Under these conditions, lump sum agreements are always as efficient as a joint venture, and depending on the production function, sales or output royalty agreements may also be as efficient. This analysis suggests that all efficiency-driven joint ventures are a response to some underlying transactional cost problem.