A transaction cost approach to strategic alliances in telecommunications

Abstract

An emerging form of international business organization is the strategic alliance, a species of joint-venture in which an innovator of technology contracts with another firm for the joint exploitation of technology and other assets across a number of national territories. This work will examine international alliances, applying insights from both the transaction cost and foreign investment theories to the telecommunications service industry and asking whether these cooperation agreements are economically efficient or they restrict competition between companies formerly operating in a domestic regulated environment. In this context, alliances have played an increasing role in the development of firms' strategies arising as a rational economic solution to market impeffections caused by high ownership costs (or ownership constraints) and information asyrnmetry. Thus, most of these alternative institutional forms can be assigned characteristics, which are intermediate between those of the market and the hierarchy and can be viewed as vertical or horizontal integration of economic activities, while ownership remains separate, and preserve the flexibility and economic rents these specific arrangements generate.