Joint Venture Strategies

Joint Venture Strategies

Design, Bargaining, and the Law

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Although they have the potential to create synergies, joint ventures by their nature contain inherent risk. Therefore, each partner in a joint venture needs to incentivize each other in order to maximize their own payoff. Extensive pre-contractual and post-contractual bargaining is essential. This book provides successful bargaining strategies from the point of view of each partner company. Using game theoretical framework to analyze joint venture strategy, it describes practical and legal issues that arise when creating synergies and incentive bargaining in a joint venture. With a particular focus on intellectual property law, including analysis based on many real cases, the book covers issues relating to creating synergies, corporate law issues of conflicts of interest, and antitrust law issues relating to cooperation between independent companies.

Chapter 2: Conflicts and risks in joint ventures: premises of incentive bargaining

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Subjects: economics and finance, game theory, law and economics, law - academic, company and insolvency law, law and economics


This chapter discusses risks associated with joint ventures that are derived from the inevitable conflicts between JV partners upon the establishment of a joint venture, and the concerns of JV partners over these risks. Since potential partners are generally aware of the conflicts inherent in joint ventures, they are naturally wary of each other’s intentions. Accordingly, such concern makes partners hesitant to contribute capital. Joint ventures must deal with conflicts concerning self-dealing, corporate opportunity, competition, and disclosure. Each of these can pose corporate law problems relating to conflicts of interest and directors’ fiduciary duties. The main risks faced by prospective JV partners aiming to establish a joint venture include: the risk of being squeezed out, the risk of opportunistic behavior by the other partner, as well as a pair of two-sided risks. The first is the risk of the other partner refusing to renegotiate and, conversely, the risk of being forced to renegotiate to one’s own detriment. The second is the risk of the other partner exiting and, conversely, the risk of being unable to exit oneself. If both partners are hesitant to contribute capital and neglect to alleviate each other’s concerns, their planned joint venture will never become reality. As such, both partners must engage in incentive bargaining over the sharing of control, sharing total return, and methods of exit, so as to ensure their mutual willingness to contribute capital.

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