Using DEA to find the best partner for a horizontal cooperation

• How to select the best matching partner for a joint venture?
• Each potential partner has a different technology.
• The operating costs of the joint venture depend on the joint venture technology.
• How can we measure the synergy with each potential partner?
• How should the benefits of the joint venture be shared?

In this paper Data Envelopment Analysis is used to select among different potential partners to form a joint venture which is the one that best fits the strategic goal of a horizontal cooperation. Since each potential partner has a different technology the one whose technology better complements ours is the one that will bring the greatest synergy to the technology of the joint venture. Models for the cases that the joint venture is planning to open one or several facilities are presented. A priori and ex-post measures of synergy between the partners are proposed. Also, a simple way of sharing the costs of the horizontal cooperation based on cooperative game theory is presented. The proposed approach is quite flexible and can be extended to include multiple-partner joint ventures as well as a multi-period planning horizon.