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Trade Liberalization and Strategic Outsourcing

Yongmin Chen (), Jota Ishikawa and Zhihao Yu ()

No 02-12, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper develops a model of strategic outsourcing. With trade liberalization in the intermediate-product market, a domestic firm may choose to purchase a key intermediate good from a more efficient foreign producer, who also competes with the domestic firm for a final good. This has a strategic effect on competition. Unlike the outsourcing motivated by cost saving, the strategic outsourcing has a collusive effect that could raise the prices of both intermediate and final goods. Trade liberalization in the intermediate-good market has a very different effect compared with trade liberalization in the final-good market.

Keywords: Outsourcing; Vertical oligopolies; Collusive effect (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2002-12-01, Revised 2004-07
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Published: Revised version in Journal of International Economics, Vol. 63, No. 2 (July 2004), pp. 419–436

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