Offshore Outsourcing Induced by Domestic Providers

Yutian Chen (), Pradeep Dubey and Debapriya Sen
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Yutian Chen: Dept. of Economics, SUNY at Stony Brook

No 05-09, Department of Economics Working Papers from Stony Brook University, Department of Economics

Abstract: We show that offshore outsourcing can occur even when there are no economies of scale or cost advantages for the foreign firms. What drives the phenomenon is that domestic firms, by accepting orders for intermediate goods, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final good. Thus they have incentive to quote high provider prices to ward off future competitors, compelling them to outsource offshore.

Keywords: Offshore outsourcing; Cournot duopoly; Stackelberg duopoly (search for similar items in EconPapers)
JEL-codes: D41 L11 L13 (search for similar items in EconPapers)
Date: 2005-05
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Persistent link: https://EconPapers.repec.org/RePEc:nys:sunysb:05-09

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