Joint Ventures

• Pages: 203-232

203

CHAPTER IV

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 that integrates certain

limited operations between firms. 1 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. 2 The parent firms may contribute productive

assets, technology, or personnel to the new firm, but 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 to provide access to inputs and

technology in an efficient manner. 4 Collaborations, including joint

ventures, can be efficiency-enhancing in many respects, promoting

research and development, standards development, purchasing, new

product development and enhancements, marketing and sales, and

information exchange.

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

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

1016 (1968).

2. Arizona v. Maricopa Cnty. 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),

[hereinafter COMPETITOR COLLABORATION GUIDELINES].

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 2, § 3.31(a),

at 13.

204 Telecom Antitrust Handbook

Several characteristics of the telecommunications sector make

collaboration, including 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; thus,

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 involve significant competitive

risks.

a. Collusion

Collaboration that provides competitors the ongoing opportunity to

disclose the terms on which they compete increases the risk of

collusion.5 While some disclosure of information may be necessary for

the efficiency-enhancing aspects of the joint venture, information sharing

between competitors may enable 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 or the use of key assets. These restraints can limit the ability and

incentive of the collaborators to compete independently in other areas.7

b. Loss of Potential Competition

A competitor collaboration may also eliminate potential competition,

where one or more of the venture participants probably would have

5. Id. § 3.31(b), at 15.

6. Id.

7. Id.