Some Economic Principles For Guiding Antitrust Policy Towards Joint Ventures

Thursday, January 1st, 1998 at 12:00 am by Howard H. Chang, David S. Evans, Richard Schmalensse
Howard H. Chang, David S. Evans, Richard Schmalensse, Some Economic Principles For Guiding Antitrust Policy Towards Joint Ventures, 1998 Colum. Bus. L. Rev. 223

The antitrust treatment of joint ventures is often tortured. The courts and enforcement agencies frequently attempt to apply case law concerning ad hoc agreements among unintegrated competitors to a form of business organization that is usually a vehicle to achieve efficiencies and increase competition. Plaintiffs commonly argue that specific, individual joint venture practices or rules are per se violations of the antitrust laws because they are agreements among competitors, and such agreements tend to reduce competition. It strikes the uninitiated (and some of the initiated) as strange that in many of these cases the joint venture participants would have faced no antitrust issue if they had merged into a single firm, eliminating all competition between them, and engaged in the same practices. Although the courts have become less likely to fall for such simplistic damnation through labeling, evading this trap takes hard judicial work. Moreover, one does not have to reach too far into the past to find examples in which the label has made the case. This paper develops three basic principles that should guide antitrust policy towards joint ventures, applies those principles to important types of joint venture behavior, and considers several recently proposed rules concerning joint ventures in light of this analysis. The principles are as follows: First, antitrust policy should neither seek to encourage nor to discourage entrepreneurs from choosing the joint venture form over other forms. Second, antitrust policy should recognize that joint ventures face different management and coordination problems than single firms and that they must adopt practices to deal with these problems. Third, antitrust policy should prevent joint ventures from circumventing the antitrust laws.

Author Information

Chang is a Senior Analyst in the Chicago office of National Economic Research Associates, Inc. Evans is a Senior Vice President in the Cambridge office of that same firm. Schmalensee is the Gordon Y. Billard Professor of Economics and Management, Massachusetts Institute of Technology.