Chen, Yutian and Dubey, Pradeep and Sen, Debapriya (2009): Outsourcing induced by strategic competition.
Download (355Kb) | Preview
We show that intermediate goods can be sourced to firms on the "outside" (that do not compete in the final product market), even when there are no economies of scale or cost advantages for these firms. What drives the phenomenon is that "inside" firms, by accepting such orders, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final product. Thus they have incentive to quote high provider prices to ward off future competitors, driving the latter to source outside.
|Item Type:||MPRA Paper|
|Original Title:||Outsourcing induced by strategic competition|
|Keywords:||Intermediate goods, outsourcing, Cournot duopoly, Stackelberg duopoly|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Debapriya Sen|
|Date Deposited:||29. Apr 2009 07:13|
|Last Modified:||15. Feb 2013 18:15|
Aggarwal, V.K. (Ed.), 2003. Winning in Asia, US Style: Market and Nonmarket strategies of Success, Palgrave Macmillan.
Antras, P. and Helpman E. 2004. Global Sourcing. Journal of Political Economy, 112, 552-580.
Arya, A., Mittendorf, B. and Sappington, D., 2008a. The make-or-buy decision in the presence of a rival: strategic outsourcing to a common supplier. Management Science, 54, 1747-1758.
Arya, A., Mittendorf, B. and Sappington, D., 2008b. Outsourcing, vertical integration, and price vs. quantity competition. International Journal of Industrial Organization, 26, 1-16.
Baake, P., Oechssler, J. and Schenk, C., 1999. Explaining cross-supplies. Journal of Economics, 70, 37-60.
Barthelemy, J. 2003. The seven deadly sins of outsourcing. Academy of Management Executive, 17, 87-98.
Buehler, S. and Haucap, J., 2006. Strategic outsourcing revisited. Journal of Economic Behavior and Organization, 61, 325-338.
Chen, Y., Dubey, P., 2009. Outsourcing under strategic competition and increasing returns to scale. Working paper, California State University, Long Beach.
Chen, Y., 2001. On vertical mergers and competitive effects. Rand Journal of Economics, 32, 667-685.
Chen, Y., Ishikawa, J. and Yu, Z., 2004. Trade liberalization and strategic outsourcing. Journal of International Economics, 63, 419-436.
Dixit, A., 1980, The role of investment in entry deterrence. Economic Journal, 90, 95-106.
Domberger, S., 1998. The Contracting Organization: A Strategic Guide to Outsourcing. Oxford University Press.
Grossman, G.M. and Helpman, E. 2002. Integration versus outsourcing in industry equilibrium. Quarterly Journal of Economics, 117, 85-120.
Hamilton, J. and Slutsky, S., 1990. Endogenous timing in duopoly games: Stackelberg or Cournot equilibria. Games and Economic Behavior, 2, 29-46.
Hart, O. and Tirole, J., 1990. Vertical integration and market foreclosure. Brookings Papers on Economic Activity, 205-276.
Heavner, D.L., 2004. Vertical enclosure: vertical integration and the reluctance to purchase from a competitor. Journal of Industrial Economics, 52, 179-199.
Hoecht, A. and Trott, P. 2006. Outsourcing, information leakage and the risk of losing technology-based competencies. European Business Review, 18, 195-412.
Jarillo, J.C., 1993. Strategic Networks: Creating Borderless Organization. Butterworth-Heinmann.
Khalfan, A.M. 2004. Information security considerations in IS/IT outsourcing projects: a descriptive case study of two sectors. International Journal of Information Management, 24, 29-42.
Mailath, G.J., 1993. Endogenous sequencing of firm decisions. Journal of Economic Theory, 59, 169-182.
Ordover, J., Saloner, G. and Salop, S.C., 1990. Equilibrium market foreclosure. American Economic Review, 80, 127-142.
Pal, D., 1996. Endogenous Stackelberg equilibria with identical firms. Games and Economic Behavior, 12, 81-94.
Ravenhill, J., 2003. Market and nonmarket strategies of the U.S. electronics industry, in Aggarwal (2003).
Rey, P., Tirole, J. 2007. A primer on foreclosure. In: Armstrong, M., Porter, R.H. (Eds.) Handbook of Industrial Organization, Vol. 3. Amsterdam: North-Holland.
Robinson, M., Kalakota, R. 2004. Offshore Outsourcing: Business Models, ROI and Best Practices, Mivar Press, Inc.
Robson, A., 1990. Duopoly with endogenous strategic timing: Stackelberg regained. International Economic Review, 31, 263-274.
Shaked, A. and Sutton, J., 1982. Relaxing price competition through product differentiation. Review of Economic Studies, 49, 3-13.
Shy, O. and Stenbacka, R., 2003. Strategic outsourcing. Journal of Economic Behavior and Organization, 50, 203-224.
Spiegel, Y., 1993. Horizontal subcontracting. The RAND Journal of Economics, 24, 570-590.
TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, Part II-Standards concerning the availability, scope and use of Intellectual Property Rights http://www.wto.org/english/tratop\_e/trips\_e/t\_agm3\_e.htm
Temponi, C. and Lambert, T. 2001. Managing outsourcing in a joint development environment: impact on innovation and new product development process. Change Management and the New Industrial Revolution, IEMC '01 Proceedings
van Damme, E. and Hurkens, S., 1999. Endogenous Stackelberg leadership. Games and Economic Behavior, 28,105-129.
Vagadia, B. 2007. Outsourcing to India-A Legal Handbook, Springer.
Vidal, C.J. and Goetschalkx M. 1997. Strategic production-distribution models: a critical review with emphasis on global supply chain models. European Journal of Operational Research, 98, 1-18.
Available Versions of this Item
- Outsourcing induced by strategic competition. (deposited 29. Apr 2009 07:13) [Currently Displayed]