Causes and Effects of Joint Venture Activity: Knowledge Acquisition Vs. Parent Horizontality

• Author: Philip Friedman,Sanford V. Berg
• DOI: 10.1177/0003603X8002500104
• Published date: 01 March 1980
• Date: 01 March 1980
• Subject Matter: Article

The Antitrust Bulletin/Spring 1980

Causes and effects

of

joint venture

activity: knowledge acquisition vs,

parent horizontality

BYSANFORD V. BERG* and

PHILIP

FRIEDMAN**

143

In two recent papers, Brodley' and Pfeffer and Nowak' argue that

corporate joint ventures (JVs) tend to be anticompetitive and

should be subject to more stringent antitrust enforcement. The

latter study, like earlier ones, tended to employ excessive levels

of

aggregation and dealt exclusively with

parent

horizontality, rather

* Associate Professor of Economics, University of Florida.

** Associate Professor of Finance and Economics, School of

Management, Boston University.

AUTHORS' NOTE: Jerome Duncan served as

research

assistant, working

with data provided by the Federal Trade Commission. This study was

prepared with the support

of

National Science Foundation Grant RDA

75-19064.

Additional support was provided by the Public Policy Re-

search Center, University

of

Florida.

Any

findings, conclusions, or

recommendations expressed herein do not necessarily reflect the views

of

sponsoring organizations.

IJoseph F. Brodley,

"The

Legal Status of Joint Ventures Under

the Antitrust Laws: A Summary Assessment," Antitrust Bulletin, Fall

1976, 453-483.

2Jeffrey Pfeffer and Philip Nowak, "Patterns of Joint Venture

Activity: Implications for Antitrust Research," Antitrust Bulletin,

Summer 1976, 315-339.

©1980 by federal Legal Publications. Inc.

144 : The antitrust bulletin

than on the characteristics of the child. Our research on the other

hand, has focused on the knowledge-acquisition aspects

of

JV ac-

tivity, as reflected in child characteristics. We conclude that there

are significant possibilities for improved innovative and allocative

efficiency which could be lost if the current rule

of

reason were

replaced by a per se approach toward JVs.

Our conclusions are based on a large-scale study

of

domestic

JV activity, which included site visits, case studies, question-

naires, and empirical analyses. Our full data sample consists

of

796 domestic JV participations between 1964 and 1975, derived

from Federal Trade Commission information sheets (where three

parent firms forming a JV counts as three "participations").

Quantitative analysis was facilitated by these unpublished data

capture sheets which contained more information on the nature

and scope

of

the child than was available in the FTC's Annual

Statistical Reports on Mergers and Acquisitions.

Since JVs are highly heterogeneous, policy recommendations

made on the basis

of

industrial aggregations should be carefully

scrutinized. Our research indicates that even the simplest and

most rudimentary application

of

disaggregation yields empirical

results that are at variance with the premise that JVs are neces-

sarily anticompetitive. Specifically, in some cases, the patterns

observed by Pfeffer and Nowak.' are consistent with knowledge

acquisition (technology transfer) rather than the creation

of

market power.

Having analyzed JV activity in terms of parent industrial

relationships and patterns of parent and child characteristics, we

conclude that implications about the causes of JV activity based

on broad market structure characteristics (such as horizontal

relationships between parents) cannot be made at the two-digit

SIC level. Furthermore, we also show that there does not appear

to be any relationship between two-digit parent classifications

and the extent of JV activity. Firm size is shown to be the major

3Pfeffer &Nowak, supra note 2. Also see Jeffrey Pfeffer and

Philip Nowak,

"Joint

Ventures and Interorganizational Interdepen-

dence," Administrative Quarterly, September 1976.