HIGH-COST DOMESTIC JOINT VENTURES AND INTERNATIONAL COMPETITION - DO DOMESTIC FIRMS GAIN

This paper develops the idea that when markets are imperfectly competi tive, final-good producers may gain from a production joint venture (P JV) that produces part of their input requirements even though the PJV 's marginal cost exceeds the input's market price. Production by the P JV lowers the market price of the input and this can raise final-good profits sufficiently to make the PJV worthwhile. Also, use of a joint venture internalizes the positive externality from a lower input price . These results are motivated by a setting in which domestic firms are dependent on foreign oligopolistic suppliers for a key input.