Strategic outsourcing and quality choice: Is a vertical integration model sustainable?

Yoshinari Miyamoto

Managerial and Decision Economics, 2021, vol. 42, issue 5, 1332-1351

Abstract: This paper uses two versions of a vertical product differentiation model with price competition to investigate how strategic behavior between rival firms influences which organizational production mode each firm adopts: that is, either vertical integration or outsourcing. We show that not only a symmetric configuration, where both high‐ and low‐quality firms outsource, but also an asymmetric configuration, where the high‐quality firm produces in‐house whereas the low‐quality firm outsources, are acceptable as a subgame‐perfect equilibrium outcome. We explore the implications of these results in light of the recent slump in business of Japanese electronics enterprises in the flat‐panel television industry.

Date: 2021
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https://doi.org/10.1002/mde.3312

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:42:y:2021:i:5:p:1332-1351

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