Scope economies, market information, and make-or-buy decision under asymmetric information

Su Xiu Xu, Qiang Lu, George Q. Huang and Ting Zhang

International Journal of Production Economics, 2013, vol. 145, issue 1, 339-348

Abstract: This paper presents a make-or-buy (M–B) model in which a firm (say Firm 1) may produce in-house, or outsource a product to the unique vendor, the monopolist in the outsourcing market. Demand for the finished product is stochastic and price-sensitive, and Firm 1's information forecast about the base market demand and corresponding precision are known when the M–B decision is faced. Firm 1 is risk-neutral and owns a constant-return-to-scale technology, while the vendor is risk-averse and enjoys the advantage of scope economies. A traditional solution is provided under perfect information.

Keywords: Outsourcing; Demand information; Decision analysis; Asymmetric information; Scope economies (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:145:y:2013:i:1:p:339-348

DOI: 10.1016/j.ijpe.2013.05.002

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