There are 4 firms: A, B, C and F. They want to form a joint...
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There are 4 firms: A, B, C and F. They want to form a joint venture (JV). The returns of the JV are as follows:
- If all the firms form a JV, the JV earns $100m
- The JV of A, B and C earns $100m
- The JV of A, B and F earns $80m
- The JV of A, C and F earns $70m
- The JV of B, C and F earns $100m
- The JV of A and B earns $80m
- The JV of A and C earns $70m
- The JV of A and F earns $30m
- The JV of B and C earns $40m
- The JV of B and F earns $80m
- The JV of C and F earns $70m
- Anyone not in a JV earns $15m
The profit of a JV must be split (not necessarily evenly) among the participating firms. Assume that firms only care about their own returns, and a firm cannot be part of more than one JV. What do you predict will happen? Who will form JV, and who will get how much of the returns?
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