Merge

Alternative forms of Cooperation between Neste & IVO

1. Compared with full- scale completed merger, organizational arrangements will achieve more potential benefits: it will avoiding the problem of price squeezing in vertical integration or problem of monopoly power. So some organizational arrangements will:

# Increases Welfare implication

# involves more Antitrust concerns

Lets see detailed description about the cooperation between Neste& IVO

2. Here we introduce a form of cooperation, which is A gas-centered joint venture:

A joint venture (JV here after) is a legal entity formed between two or more parties to undertake an economic activity together and sharing the risk in formation, and profits as well. The parties agree that in a certain time to create a new entity and new assets by contributing equity.

* So in this way, Neste’s supply of natural gas would be united with IVO’s gas-powered electricity production.

* In this form of Cooperation, Benefits including:

# Internalize potential synergy effects: The output of natural gas in Neste, can directly contribute as an input into electricity production in IVO firm. This reduced transaction cost and switching cost.

# Reducing distortions caused by underinvestment, which created by holding up problem. We know that gas industry, electricity industry all have the huge economic scale, which involves huge sunk cost, huge fixed costs, and huge investment. So only huge companies are able to cover this large amount of investment, and keep the project processing.

# Avoiding some antitrust concerns

# Avoiding concerns of horizontal merger in the residential heating market

* Drawbacks including:

# Fuel Mix is not well diversifiedcompetitiveness is questioned

Even this gas-centered joint venture coordinated with these IVO’ non-gas-powered electricity-production can reduce competition problem, but not all.

* In order to avoid market performance of a complete Neste-IVO merge:...