Profit reducing international outsourcing

Sugata Marjit and Arijit Mukherjee

Journal of International Trade & Economic Development, 2008, vol. 17, issue 1, pages 21-35

Abstract: Recent empirical evidence shows a negative relationship between international outsourcing and profitability. This paper provides a theoretical explanation for this phenomenon. We show that, in an oligopolistic market, firms earn lower profits in the outsourcing equilibrium compared to the situation where neither firm does outsourcing, and this holds irrespective of the intensity of competition. We show that whether international outsourcing is likely to reduce profit under more intense competition (measured by the degree of product differentiation, number of firms and the type of product market competition, namely, Cournot and Bertrand competition) is ambiguous. We further show that international outsourcing may be socially 'excessive' for the sourced country and for the world.

Keywords: international outsourcing; profit, welfare, (search for similar items in EconPapers)
Date: 2008

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:jitecd:v:17:y:2008:i:1:p:21-35

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.html

Access Statistics for this article

Journal of International Trade & Economic Development is edited by Pasquale M. Sgro and Bharat R. Hazari

More articles in Journal of International Trade & Economic Development from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().