Patterns of Joint Venture Activity: Implications for Antitrust Policy

• Published date: 01 June 1976
• DOI: 10.1177/0003603X7602100205
• Date: 01 June 1976
• Subject Matter: Article

PAnERNSOF

JOINT

VEN:TURE

ACTIVITY:

IMPLICATIONS FOR

ANTITRUST

POUCY

by

JEFFREY

PFEFFER·

and

.PHILLIP

NOWAK"

As Mead has noted,

"A

free

enterprise

economy relies on

effective competition to produce optimal resource alloca-

tion." 1The

preservation

of competition in markets is one

of the explicit objectives of

antitrust

policy. And,

it

is gen-

erally recognized

that

competition among firms

may

be re-

duced to the extent they

are

linked together through inter-

locking directorates," merger," or associations or cartels."

Joint ventures constitute yet another

form

of interfirm link-

age which, we argue, can have the some potentially anticom-

petitive effect as the

mergers

and

board

of director interlocks

that

have been more frequently

and

more vigorously prose-

cuted by the

Federal

Trade

Commission

and

the

Justice

Department.

One might expect

that

if proscriptions

against

linkages

between organizations, such as merger, were more vigorously

enforced

than

against

other

linkages, such as joint ventures,

then the less-prosecuted form might be used as a substitute

for

the other form of association. This is precisely the argu-

ment of

Pate:

• School of Business Administration, University of California

at Berkeley.

..

Contra Costa County Planning Department.

1Walter

J.

Mead, "The Competitive Significance of

Joint

Ven-

tures,"

Antitrust

Bulletin,

Fall

1967, 12, p. 819.

2

Peter

C. Dooley,

"The

Interlocking Directorate," American Eco-

nomic Review, 1969, 59, pp. 314-23.

8

Bureau

of Economics, Federal Trade Commission, Economic

Report on Corporate Mergers, Washington, D.C.: Commerce Clear-

ing House, 1969.

4See, for example, a discussion of the role of the Cement Manu-

facturers' Association in fixing prices in the cement

industry

in

Earl

Latham, The Group Basis of Politics, New York: Cornell Uni-

versity Press, 1952.

315

316

THE

ANTITRUST

BULLETIN

During the period 1960-1968, it

appears

that

many firms

achieved through joint ventures some of the benefits nor-

mally associated with horizontal or vertical

expansion-

benefits that,

for

avariety of reasons, were

not

available,

under prevailing conditions, through the more traditional

merger approach.

It

is not surprising, therefore,

that

the growth in the number of

joint

ventures reflects, to

some extent, the aggressiveness of

antitrust

enforcement

in the

area

of horizontal

and

vertical mergers,"

Boyle also has argued

that

the increase on

joint

venture ac-

tivity

after

the mid-1950's was a consequence of the increased

use of Section 7 of the Clayton Act,"

While

joint

ventures, then, may be employed as substi-

tutes for more proscribed forms of interfirm association, ex-

cept for the petroleum industry, analysis of the economic im-

pact

of joint ventures has been limited," The purpose of this

paper

is to examine the

pattern

of joint ventures

during

the

period 1960-1971 in manufacturing, to explore the competitive

relationships of the firms involved,

and

to develop hypotheses

explaining the observed

pattern

of joint venture activity. We

argue

that

joint

ventures

are

undertaken by firms to manage

their competitive

and

buyer-seller interdependence with other

firms, and

that

joint

ventures, if successful in reducing the

uncertainty associated with these forms of interdependence,

SJames L. Pate,

"Joint

Venture Activity, 1960-1968," Economic

Review of the Federal Reserve Bank of Cleveland,

July

1969, p. '23.

6Stanley E. Boyle,

"An

Estimate of the Number

and

Size Dis-

tribution of Domestic

Joint

Subsidiaries,"

Antitrust

Law and Eco-

nomics Review,

Spring

1968, p. 81.

?However, there have been several analyses of the legal status

of

joint

ventures, including

Jules

Bachman,

"Joint

Ventures and

the

Antitrust

Laws," New York University Law Review, 1965,40, pp.

651-71; G. E. Hale,

"Joint

Subsidiaries: Collaborative Subsidiaries

and

the

Antitrust

Laws," Virginia Law Review, 1956, 42, pp. 927-38;

George K. Meir, "United States v. Penn-Olin: Criteria to Determine

a

Joint

Venture's Competitive Effect," Dickinson Law Review, 1968,

72, pp. 632-50;

and

Patrick

J. Smith,

"Joint

Ventures

and

Antitrust

Policy," Ohio State Law Journal, 1965, 26, pp. 439-59.