Welfare effects of outsourcing in duopolistic markets

Jan König

No 2010/34, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: This paper shows the strategic aspects of international outsourcing in a duopolistic market. Due to different costs of integrated production and outsourcing, the choice of a firm influences the strategy of the competitor via the output price. Therefore, the resulting market constellation depends on the fixed costs and the difference between marginal costs. We show that the three market constellations, both firms produce integrated, both use outsourcing and the firms operate with different strategies are possible. Also the welfare effects of the different outcomes are analysed. If the optimal firms decision is characterized by different strategies, this constellations for given costs is pareto superior to a constellation with equal strategies. On the other hand, for given costs, a resulting constellation of equal strategies can be pareto inferior or pareto superior to a constellation with different strategies.

Keywords: strategic outsourcing; oligopoly; welfare effects (search for similar items in EconPapers)
JEL-codes: D43 L13 L22 L23 L24 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:201034

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