Dynamically stable corporate joint ventures

David W. K. Yeung*, Leon Petrosyan

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

20 Citations (Scopus)

Abstract

As markets continue to become global and firms become more international, corporate joint ventures provide firms with opportunities to rapidly create economies of scale and learn new skills and technologies that would be very difficult for them to obtain on their own. However, it is often observed that after a certain time of cooperation, some firms may gain sufficient skills and technology that they would do better by breaking up from the joint venture. This is the well-known problem of time inconsistency. In this paper, we consider a dynamic joint venture which adopts the shapley value as its profit allocation scheme. A compensation mechanism distributing payments to participating firms at each instant of time is devised to ensure the realization of the shapley value imputation throughout the venture duration. Hence time-consistency is attained, and a dynamically stable joint venture results. Extension of the analysis to a stochastic environment is also made. It is the first time that stable joint venture is analyzed both deterministically and stochastically in a dynamic environment.

Original languageEnglish
Pages (from-to)365-370
Number of pages6
JournalAutomatica
Volume42
Issue number3
DOIs
Publication statusPublished - Mar 2006
Externally publishedYes

Scopus Subject Areas

  • Control and Systems Engineering
  • Electrical and Electronic Engineering

User-Defined Keywords

  • Corporate joint venture
  • Dynamic programming
  • Stochastic control
  • The shapley value

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