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 5: Bargaining over exit rights

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


Available avenues for JV partners to exit a joint venture is an important topic that should be incorporated into the joint venture agreement. As such, exit rights are subject to pre-contract bargaining (see Chapter 8). Although partners are naturally hesitant to negotiate conditions of termination when first setting up the joint venture, methods of exit are an important topic in preliminary bargaining because they can influence incentive bargaining strategies that depend on the threat of exit. JV partners must be cognizant of three points when bargaining over methods of exit. First, a partner that contributes resources essential to the joint venture’s operation may be able to gain an upper hand in bargaining over the sharing of control of the joint venture and/or the sharing of total return. Second, bargaining over the sharing of total return is influenced by the terms that govern partner recovery of invested capital at the time of exit. Third, the manner in which partners contribute resources to a joint venture may differ depending on whether contributed assets can be extracted when exiting the joint venture.

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