Joint venture breakup and the exploration-exploitation trade-off
2009
Van Long , Ngo (McGill University(Canada). Department of Economics) | Soubeyran , Antoine (Université Aix-Marseille 2(France). GREQAM, Groupement de Recherche en Economie Quantitative d’Aix Marseille) | Soubeyran , Raphael (INRA , Montpellier (France). UMR 1135 Laboratoire Montpelliérain d'Economie Théorique et Appliquée)
This paper explores the effect of a potential joint-venture breakup on the level of technology transfer in a set-up with exploration-exploitation trade-offs in the presence of time compression costs. We consider a joint-venture relationship between a technologically advanced multinational rm and a local rm operating in a developing economy where the ability to enforce contracts is weak, and the local rm can quit without penalties. The multinational rm has to consider the advantages and disadvantages of an intensive transfer of technology versus an extensive one. In response to the breakup incentives, the multinational rm reduces the intensity (lowering the pace)and opts for a more extensive transfer mode (longer duration of transfer), compared to the rst best. The scheme is supported by a flow of side payments to encourage the local rm to stay longer. We show that a fall in time compression costs may increase or decrease the intensity of technology transfer, both in the rst-best and in the second-best scenarios, depending on the nature of the saving in time-compression costs.
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