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Journal of Law, Economics, and Organization Advance Access published online on October 31, 2007
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewm051
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© The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Sustaining Cooperation with Joint Ventures

Russell W. Cooper*

University of Texas, Austin

Thomas W. Ross**

University of British Columbia

* Department of Economics, University of Texas, Austin, Texas 78746. Email: cooper{at}eco.utexas.edu.

** Sauder School of Business, University of British Columbia, Vancouver, BC V6T 1Z2, Canada. Email: tom.ross{at}sauder.ubc.ca.

Antitrust agencies and courts have expressed concerns that joint ventures and strategic alliances between firms that compete in other markets might serve to reduce the vigor of their competition. This article explores a mechanism through which a joint venture between two (or more) firms in one market can serve to facilitate collusion in another market—even one unconnected vertically or horizontally by costs or demand. In the models studied here, play in one market has the effect of altering players' beliefs about their rivals' play in the second market. A joint venture in one market may provide a credible punishment mechanism for firms colluding in another market. The joint venture may also provide a vehicle for the transmission, between players, of information in a way that helps cooperative types find each other and collude in other markets.


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