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Strategic outsourcing with technology transfer under price competition

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  • Kabiraj, Tarun
  • Sinha, Uday Bhanu

Abstract

Consider a framework where two firms produce differentiated goods and compete in prices, and one of them possesses input production technology, superior to that of an existing independent input supplier. We show that the superior technology owning firm can sell its patent to and outsource inputs from the input supplier. This happens if the degree of product differentiation is small or the technological gap between the two input producing firms is small. While the outsourcing firm gains, both consumers' welfare and social welfare go down. Interestingly, sometimes the rival firm's profit increases. These results have implications for competition policy.

Suggested Citation

  • Kabiraj, Tarun & Sinha, Uday Bhanu, 2016. "Strategic outsourcing with technology transfer under price competition," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 281-290.
  • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:281-290
    DOI: 10.1016/j.iref.2016.02.016
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    Citations

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    Cited by:

    1. Tarun Kabiraj & Uday Bhanu Sinha, 2017. "Outsourcing under incomplete information," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 10(1), pages 3-15, April.
    2. Hyun-Joon Jo & Timothy Connerton & Hyun-Jung Kim, 2019. "Dynamic Outsourcing Development for Sustainable Competitive Advantage in a High-Tech Backend Semiconductor Equipment Firm," Sustainability, MDPI, vol. 12(1), pages 1-13, December.
    3. Tarun Kabiraj & Uday Bhanu Sinha, 2014. "Strategic Outsourcing with Technology Transfer under Cournot Competition," Economics Bulletin, AccessEcon, vol. 34(2), pages 1133-1140.
    4. Luciano Fanti & Marcella Scrimitore, 2017. "Hiring a manager or not? When asymmetric equilibria arise under outsourcing to a rival," Discussion Papers 2017/220, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. Tai‐Liang Chen & Zuyi Huang, 2020. "Technology licensing or cost‐reducing outsourcing? Game theoretical analysis on consumers' home bias effects and firms' optimal strategies," Bulletin of Economic Research, Wiley Blackwell, vol. 72(4), pages 417-433, October.
    6. Kabiraj, Tarun & Sinha, Uday Bhanu, 2016. "Strategic outsourcing with technology transfer under price competition," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 281-290.
    7. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    8. Cao, Jiyun & Mukherjee, Arijit & Sinha, Uday Bhanu, 2018. "Firm-asymmetry and strategic outsourcing," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 16-24.
    9. Wei‐Jen Wen & Wen‐Chieh Lee & Chung‐Yen Lo, 2023. "To make or to buy from a common supplier? Strategic considerations and welfare consequences," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 39-61, March.
    10. Yoonho Choi & E. Kwan Choi, 2021. "Selling High-Tech Inputs to the Enemy," CESifo Working Paper Series 8886, CESifo.
    11. Agata Marcysiak, 2020. "Conditions for the functioning of outsourcing in enterprises," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(1), pages 539-554, September.
    12. Choi, Yoonho & Choi, E. Kwan, 2021. "Selling high-tech inputs to the enemy," International Journal of Production Economics, Elsevier, vol. 234(C).

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    More about this item

    Keywords

    Outsourcing; Patent sale; Price competition; Welfare; Competition policy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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