Product quality, incomplete contract and the product cycle

Huanlang He and Zhihao Yu ()

International Review of Economics & Finance, 2018, vol. 53, issue C, 160-167

Abstract: According to the traditional theory of product cycle, firms in the North usually produce goods by themselves when the goods are relatively new, but later move production to the South after they become mature. But why do some firms choose intrafirm production transfer before arm's length transfer, while others choose to skip the stage of intrafirm transfer and go straight to arm's length transfer? By introducing product quality into the incomplete-contract framework of the product cycle, we show that more capable firms choose high-quality intermediate inputs, produce high-quality products, and choose intrafirm transfer before arm's length. Conversely, less capable firms choose the latter in the product cycle.

Keywords: Product cycle; Product quality; Incomplete contract; Firm boundaries; Outsourcing (search for similar items in EconPapers)
JEL-codes: D23 F12 F23 L22 L33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017303945
Full text for ScienceDirect subscribers only

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: https://EconPapers.repec.org/RePEc:eee:reveco:v:53:y:2018:i:c:p:160-167

DOI: 10.1016/j.iref.2017.10.003

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().