Quantifying the competitive effects of production joint ventures

A joint venture among competitors to produce output alters the parents' competitive incentives. Any joint venture involves both joint financial interest and control over the production levels of the venture entity and the parent firms. The competitive incentives of the parents and rival firms depend on the exact financial interest and control arrangements made. This paper analyzes a number of alternative arrangements within the standard non-cooperative oligopoly model and devises a Modified Herfindahl-Hirshman Index ( MHHI ) to quantify their relative competitive incentives. Independent entry by a single parent and a full merger of the parents may be viewed as particular financial interest and control arrangements. The use of this methodology for policy analysis of proposed ventures is illustrated with the facts of the recent GM-Toyota joint venture.