Partial outsourcing, monitoring cost, and market structure

Oz Shy and Rune Stenbacka

Canadian Journal of Economics, 2005, vol. 38, issue 4, 1173-1190

Abstract: We investigate firms' outsourcing decisions when production requires a large number of inputs. The novelty of our approach is that it provides a testable framework to characterize the equilibrium fraction of outsourced inputs. We demonstrate that intensified competition in a Cournot market for the final good typically enlarges the set of outsourced components relative to those produced in-house. The proportions of outsourced inputs are found to be strategic substitutes independently of whether firms compete with respect to quantities or prices in the market for the final good.

JEL-codes: D20 L22 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (26)

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