Strategic investment and international outsourcing in unionised oligopoly

Dermot Leahy, Catia Montagna

    Research output: Working paperDiscussion paper

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    Abstract

    We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2010

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.231
    ISSN (Print)1473-236X

    Keywords

    • Outsourcing
    • Unionisation
    • Strategic investment
    • Trade liberalisation
    • Oligopoly

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