The Choice of Prices versus Quantities under Outsourcing

Chang Ray-Yun, Jin-Li Hu () and Lin Yan-Shu ()
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Chang Ray-Yun: Department of Economics, Chinese Culture University, Taipei, Taiwan
Lin Yan-Shu: Department of Economics, National Dong Hwa University, Hualien, Taiwan

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 20

Abstract: This paper establishes a duopoly model with product differentiation and outsourcing in order to analyze the equilibrium competition strategies (choice of prices versus quantities) when the outsourcer outsources its intermediate good to a final product competitor. We show that: (1) both firms choose the quantity strategy when the cost efficiency of the subcontractor is low; (2) the choice of competition strategy is the price strategy for the subcontractor and the quantity strategy for the outsourcer when the cost efficiency of the subcontractor is moderate; (3) both firms choose the price strategy when the cost efficiency of the subcontractor is sufficiently high.

Keywords: competition strategy; outsourcing; intermediate market (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1515/bejte-2016-0195

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