International joint ventures can lead to welfare losses when the newly established firm ?
Correct answer: D. gives rise to increased amounts of market power
- A. adds to the pre-existing productive capacity
- B. enters markets neither parent could have entered individually
- C. yields cost reductions unavailable to parent firms
- D. gives rise to increased amounts of market power
Explanation
A joint venture can create welfare losses when it increases market power, allowing the new firm to restrict output and charge prices above competitive levels. Adding capacity, entering otherwise inaccessible markets, and reducing costs generally improve welfare.
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