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Organisation costs and a theory of joint ventures

Author: Balakrishnan, Srinivasan ; Koza, Mitchell P.INSEAD Area: Strategy Series: Working Paper ; 89/54/SM Publisher: Fontainebleau : INSEAD, 1989.Language: EnglishDescription: 30 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: In this paper it is argued that joint ventures are superior to contracts and internalization, as a mean for firms to diversify into new lines of business, when transaction costs and the costs of valuing and acquiring complementary assets are both significant. A joint venture is likely to be chosen over an acquisition under these circumstances because it produces incentives for honesty between the transacting partners, afford opportunities for iterative contracting, and facilitates organizational learning
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In this paper it is argued that joint ventures are superior to contracts and internalization, as a mean for firms to diversify into new lines of business, when transaction costs and the costs of valuing and acquiring complementary assets are both significant. A joint venture is likely to be chosen over an acquisition under these circumstances because it produces incentives for honesty between the transacting partners, afford opportunities for iterative contracting, and facilitates organizational learning

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