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Outsourcing Under Incomplete Information

Tarun Kabiraj and Uday Sinha ()

Working Papers from eSocialSciences

Abstract: The Author considers outsourcing decision of a firm in a Cournot duopoly with incomplete information. There is incomplete information about the production technology of one firm. It is shown that outsourcing can occur as outcomes of a separating or pooling perfect Bayesian equilibrium, although it is not profitable under complete information. Thus, the paper shows that asymmetric information can itself be a reason for outsourcing. It further shows that under outsourcing equilibrium consumers gain, producers as a whole loose, but the overall welfare falls.

Keywords: Outsourcing; incomplete information; Bayesian Cournot; signalling and pooling equilibrium; welfare analysis; outsourcing decision; firm; information; production; technology. (search for similar items in EconPapers)
Date: 2017-11
Note: Institutional Papers
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