Collaborative Ventures: An Alternative to Integration?

New Institutional Economics claim that firms need to define their boundaries. In order to do so, the associated make-or-buy decisions are made by comparing the benefits and costs of using the market to those associated with performing the activity in-house. However, modern firms not only choose between make or buy but include hybrid forms of organization in their options. To analyze whether collaborations are a feasible alternative in terms of offering efficient investment incentives, a simple model is developed that allows for a comparison of strategic alliances, joint ventures, and integration. Inefficiencies in investment incentives associated with these governance structures are identified. Extensions are presented and results are critically reviewed. This book was written to provide new insights into the boundaries of the firm debate in New Institutional Economics. As a simple model is used to illustrate different payoff structures, this book provides a good introduction to students, researchers and managers interested in an economic explanation to the consequences of different organizational design.