Strategic Outsourcing between Rivals

Yutian Chen
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Yutian Chen: Department of Economics, California State University

Annals of Economics and Finance, 2010, vol. 11, issue 2, 301-311

Abstract: By outsourcing key intermediate goods to a downstream competitor, a firm can credibly reveals its future quantity of the final good to its competitor, therefore force the latter to act as a Stackelberg follower in the downstream market. As a result, whether outsourcing occurs or not depends on the nature of the downstream competition. If firms compete in quantities, outsourcing occurs only if it generates a sufficiently large efficiency gain. Instead, if firms compete in prices, outsourcing always occurs whenever there is potential efficiency gain.

Keywords: Outsourcing; Cournot duopoly; Bertrand duopoly (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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