Outsourcing Induced by Strategic Competition

Yutian Chen, Pradeep Dubey and Debapriya Sen
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Yutian Chen: Dept. of Economics, SUNY-Stony Brook

No 1589, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: 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.

Keywords: Intermediate goods; Outsourcing; Cournot duopoly; Stackelberg duopoly (search for similar items in EconPapers)
JEL-codes: D41 L11 L13 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2006-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Outsourcing induced by strategic competition (2011)
Working Paper: Outsourcing induced by strategic competition (2009)
Working Paper: Outsourcing Induced by Strategic Competition (2006)
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