Consider the following possibilities for a joint venture formation between three firms, A, B, and C. A partnership is only formed if the firms involved in it agree on a way to split the value generated by the partnership. Only one partnership can be formed and, as indicated below, not forming a joint venture at all is also a possibility. In the table below you can find the value generated in each of the possible scenarios.

Using the framework of added value, what is the maximum you would expect each of the firms to obtain out of this joint venture? 

And what would be the minimum each one could be assured to obtain out of the joint venture?

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Partnership Structure Three-firm joint venture A and B partnership B and C partnership A and C partnership No partnership Total Profits 100 100 80 60 50 Notes 75 for A and B + 25 for C 60 for B and C + 20 for A 55 for A and C + 5 for B 20 for A, 5 for B, and 25 for C. Partnership Structure Three-firm joint venture A and B partnership B and C partnership A and C partnership No partnership Total Profits 100 100 80 60 50 Notes 75 for A and B + 25 for C 60 for B and C + 20 for A 55 for A and C + 5 for B 20 for A, 5 for B, and 25 for C.

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To determine the maximum and minimum value each firm could obtain from the joint venture analyzing t... View the full answer