Competition and Offshoring

Antonio Rodriguez-Lopez ()

No 111213, Working Papers from University of California-Irvine, Department of Economics

Abstract: I present a model of offshoring decisions with heterogeneous firms, random adjustment costs, and endogenous markups. The model shows an inverted-U relationship between firm-level productivity and the probability of offshoring; hence, the most productive firms are less likely to offshore than some lower-productivity firms. A tougher competitive environment has two opposing effects on firm-level offshoring likelihood: a Schumpeterian effect--accounting for the negative effect of competition on offshoring profits--and an escape-competition effect--accounting for the effect of competition on the incremental profits from offshoring. A productivity level separates non-offshoring firms according to the dominant effect, with the Schumpeterian effect dominating for the least productive firms.

Keywords: Competition; Offshoring; Heterogeneous firms; Endogenous markups; Adjustment costs (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-06
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:111213

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