Optimal Ownership Structures in Asymmetric Joint Ventures

Abstract

This paper investigates the relation between asymmetries in the distribution of shares in joint ventures and asymmetries between the parent companies. When the joint venture and the parent companies are controlled by separate entities, we provide a simple formula to compute the optimal ownership structure. This formula is applied to various models of market interaction, showing that larger companies should have a larger fraction of shares, and so should companies whose goods are closer substitutes of the product of the joint venture, or companies who have a higher cost of transformation of the input produced by a joint venture.