Chapter III. Joint Ventures

• Pages: 175-194

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CHAPTER III

JOINT VENTURES

A. Benefits and Competitive Risks of Joint Ventures

1. Benefits of Joint Ventures

Joint ventures represent a specific example of collaboration, typically

signified by the creation of a separate new entity. In the

telecommunications field, common examples of joint ventures are those

involving shared access to satellite and wireless telecommunications

networks, cooperative research and development for cellular handset

hardware, and cross-border activities.

Joint ventures often share ongoing risks of loss as well as the

opportunities for profit.1 A joint venture, therefore, integrates certain

limited operations between otherwise separate firms.2 These parent firms

may contribute productive assets, technology, or personnel to the new

firm, and the parent firms maintain their other operations separately.3

Joint ventures, like other collaborations, may utilize the knowledge,

capabilities, and resources of competitors to produce jointly a product

that none of them could produce alone or provide access to inputs and

technology in an efficient manner.4 Collaborations can be efficiency-

enhancing in many aspects, including research and development,

1. Arizona v. Maricopa County Med. Soc’y., 457 U.S. 332, 356 (1982); see

also U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST

GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS § 1.3 (2000)

(Competitor Collaborations Distinguished from Mergers) available at

www.ftc.gov/OS/2000/04/ftcdojguidelines.pdf [hereinafter COMPETITOR

COLLABORATION GUIDELINES].

2. Robert Pitofsky, Joint Ventures Under the Antitrust Laws: Some

Reflections on the Significance of Penn-Olin, 82 HARV. L. REV. 1007,

1016 (1968).

3. Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 HARV. L. REV.

1521, 1525-26 n.7 (1982).

4. COMPETITOR COLLABORATION GUIDELINES, supra note 1, § 3.31(a) at 13.

176 Telecom Antitrust Handbook

standards development, production, purchasing, marketing and sales, and

information exchange.

Several characteristics of the telecommunications sector make

collaboration and joint ventures a beneficial business strategy.

Telecommunications network infrastructure is generally large, complex,

and expensive. Telecommunications technology is constantly improving,

with relatively short product life cycles. Given these market

characteristics, telecommunications companies have worked together in

many areas, particularly network expansion and certain aspects of new

product development. These market characteristics remain, even with the

continued build-out of global telecommunications networks, the

convergence of terrestrial, satellite, and cellular technologies, and the

dominating role of the Internet in the modern economy, so competitor

collaboration promises to continue to be an attractive strategy in the

future.

2. Competitive Risks of Joint Ventures

While joint ventures generally have legitimate aims and are usually

procompetitive, these arrangements also contain significant competitive

risks.

a. Collusion

There is an increased risk of collusion when collaboration provides

competitors the ongoing opportunity to discuss the terms of competition.5

While some disclosure of information may be necessary for the

efficiency-enhancing aspects of the joint venture, information sharing

between competitors may increase the likelihood of collusion on matters

such as price or output.6

The collaboration may also restrain competition outside of the scope

of the agreement. For example, the collaboration may control the level of

output, the use of key assets, or the price at which the products of the

joint venture can be marketed, which can limit the ability and incentive

of the collaborators to compete independently in other areas.7

5. Id. § 3.31(b) at 15.

6. Id.

7. Id.