Essi Eerola and Niku Määttänen

"Strategic alliances, joint investments, and market structure"
JEL codes: L12; L13
Keywords: Strategic alliances; Oligopoly; Preemptive investment

Abstract: This paper examines strategic alliances (SAs) involving joint investments in and sharing of production capacity. We consider a situation where market entry is limited by the availability of an essential production capacity. New capacity becomes sequentially available, and the incumbent firms may form a strategic alliance in order to jointly invest in it. In this setting, SAs may influence competition in the product market by affecting market entry. We characterize the evolution of the market structure. We also show that SAs need not be anticompetitive. That is, banning SAs may lead to a more concentrated market structure than what would otherwise be the case.

Pre-publication pdf copy.