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Outsourcing without Cost Advantages

Chrysovalantou Milliou

No 10645, CESifo Working Paper Series from CESifo

Abstract: This paper explores why competing firms can choose to outsource to an external common supplier that does not have a cost advantage in input production. The supplier, through its contract offers, manages to generate asymmetry, to alter product market competition, and to extract profits from the competing .rms. Two-part tariffs and sequential contracting are both crucial for the emergence of outsourcing. The supplier purposefully avoids industry pro.t maximization to enlarge its profits share. Both consumer and total welfare benefit from the presence of an otherwise redundant supplier in the market.

Keywords: outsourcing; strategic outsourcing; make-or-buy; two-part tariffs; common supplier; sequential contracting (search for similar items in EconPapers)
JEL-codes: D43 L11 L22 L23 L24 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10645

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