STRATEGIC INVESTMENT AND INTERNATIONAL OUTSOURCING IN UNIONISED OLIGOPOLY

Dermot Leahy and Catia Montagna

No 231, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms.

Keywords: Outsourcing; Unionisation; Strategic Investment; Trade Liberalisation; Oligopoly (search for similar items in EconPapers)
JEL-codes: F12 J51 L13 L14 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-03
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Strategic investment and international outsourcing in unionised oligopoly (2012)
Working Paper: Strategic Investment and International Outsourcing In Unionised Oligopoly (2011)
Working Paper: Strategic investment and international outsourcing in unionised oligopoly (2010)
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