Strategic Interactions, Bargaining Power and Stability of Joint Venture in an Emerging Nation

Rituparna Kaushik () and Sourabh Paul

Journal of Industry, Competition and Trade, 2021, vol. 21, issue 4, No 4, 543-564

Abstract: Abstract We model strategic interaction between a domestic firm and a foreign firm involved in a joint venture, incorporating negotiations over equity shares and its implications for stability in the context of an emerging country. The foreign firm has superior technology, whereas the domestic firm has better local market knowledge. Modelling simultaneous innovation effort and bargaining power over equity share, we provide a rationale for the stability of the joint venture. We find that a certain level of technological knowledge can empower the bargaining power under certain parameter configurations and assumptions, such that the firms will negotiate to agree over their equity shares and maintain the joint venture. In this context, the stability of the joint venture is always an expected outcome. We have also shown that the domestic firm’s bargaining power and knowledge acquisition directly affect the domestic firm’s R&D effort and threaten the stability of the JV. We try to justify a probable situation where the firms may negotiate hard over equity shares but still maintain the joint venture.

Keywords: Joint venture; Competition; Strategic interactions; Technology transfer; R&D (search for similar items in EconPapers)
JEL-codes: F23 L13 L24 O32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10842-021-00368-2

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