Technology Transfer, Merger and Joint Venture : A Comparative Welfare Analysis*

Roy, Prithvijit; Kabiraj, Tarun; Mukherjee, Arijit

doi:1999.14.3.442

Journal of Economic Integration 1999 September;14(3) :442-466.
DOI: https://doi.org/10.11130/jei.1999.14.3.442

Technology Transfer, Merger and Joint Venture : A Comparative Welfare Analysis*

Prithvijit Roy, Tarun Kabiraj, Arijit Mukherjee

Indian Statistical Institute

ABSTRACT

We consider a framework where initially a foreign firm and a few domestic firms are competing in a homogenous product local market. The foreign firm has a lower marginal cost of production relative to the domestic firms. We study then possibility of a bilateral agreement between the foreign firm and a local firm on each of technology transfer, merger and joint venture. Given the optimal behavior of the foreign firm, the paper also examines welfare implications of each such collaborative deal. Depending on cost asymmetry it is always profitable for the foreign firm to go for the one or the other deal. But the local government generally encourages new firm joint venture formation. The degree of cost asymmetry and the number of firms in the market play an important role in this analysis. (JEL Classification: D43; L13; F23.)

Keywords: technology transfer | merger | joint venture