The Output and Profit Effects of Horizontal Joint Ventures

The effects of production joint ventures on their parents' profits and total industry output are analyzed. Using a conjectural variations model, joint ventures that represent new producing entities are shown to be more likely--because the profits of parents in the same industry are more likely to increase--under conditions of cooperative as opposed to rivalrous behavior. Under the same circumstances, industry output increases, although a modest rise in cooperation among firms suffices to reverse these effects. The precise results are shown also to depend upon the degree of coordination of the output decisions of the joint venture and its parents.