‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure

Dermot, Leahy and Catia, Montagna (2007): ‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure.

Abstract

We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.

• Item Type: MPRA Paper
• Language: English
• Keywords: Outsourcing, Vertical Integration, Trade Liberalisation, Oligopoly
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior; F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F1 - Trade; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance

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