Pierce, Andrea and Sen, Debapriya (2009): Outsourcing versus technology transfer: Hotelling meets Stackelberg.
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We consider a Hotelling duopoly with two firms A and B in the final good market. Both can produce the required intermediate good, firm B having a lower cost due to a superior technology. We compare two contracts: outsourcing (A orders the intermediate good from B) and technology transfer (B transfers its technology to A). An outsourcing order is equivalent to building an endogenous capacity and it generates a Stackelberg leadership effect for firm A which is absent in technology transfer. We show that compared to the situation of no contracts there are always Pareto improving outsourcing contracts (making both firms better off and all consumers at least weakly better off), but no Pareto improving technology transfer contracts. It is also shown that if firm B has a relatively large bargaining power in its negotiations with A, then both firms prefer technology transfer while all consumers prefer outsourcing.
|Item Type:||MPRA Paper|
|Original Title:||Outsourcing versus technology transfer: Hotelling meets Stackelberg|
|Keywords:||Outsourcing; Technology transfer; Hotelling duopoly; Endogenous capacity; Stackelberg effect; Pareto improving contracts|
|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, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Debapriya Sen|
|Date Deposited:||11 Aug 2012 12:09|
|Last Modified:||04 Feb 2017 01:46|
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Outsourcing versus technology transfer: Hotelling meets Stackelberg. (deposited 12 Jun 2009 03:48)
Outsourcing versus technology transfer: Hotelling meets Stackelberg. (deposited 23 May 2011 12:02)
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