Abstract
We study the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Firms’ mode of operation decision depends on both
the incentive to economize on costs and on strategic considerations. We explore the strategic incentives to outsource and show that asymmetric equilibria emerge, with firms choosing different modes of operation, even when they are ex-ante identical. With ex-ante asymmetries, higher cost firms are more likely to outsource. We apply our model to a number of different international trading setups.
the incentive to economize on costs and on strategic considerations. We explore the strategic incentives to outsource and show that asymmetric equilibria emerge, with firms choosing different modes of operation, even when they are ex-ante identical. With ex-ante asymmetries, higher cost firms are more likely to outsource. We apply our model to a number of different international trading setups.
| Original language | English |
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| Publisher | University of Dundee |
| Number of pages | 35 |
| Publication status | Published - Apr 2011 |
Publication series
| Name | Dundee Discussion Papers in Economics |
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| Publisher | University of Dundee |
| No. | 251 |
| ISSN (Print) | 1473-236X |
Keywords
- Outsourcing
- Vertical integration
- Trade liberalisation
- Oligopoly