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Strategic Outsourcing between Rivals

Author

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  • Yutian Chen

    (Department of Economics, California State University)

Abstract

By outsourcing key intermediate goods to a downstream competitor, a firm can credibly reveals its future quantity of the final good to its competitor, therefore force the latter to act as a Stackelberg follower in the downstream market. As a result, whether outsourcing occurs or not depends on the nature of the downstream competition. If firms compete in quantities, outsourcing occurs only if it generates a sufficiently large efficiency gain. Instead, if firms compete in prices, outsourcing always occurs whenever there is potential efficiency gain.

Suggested Citation

  • Yutian Chen, 2010. "Strategic Outsourcing between Rivals," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 301-311, November.
    • Handle: RePEc:cuf:journl:y:2010:v:11:i:2:p:301-311
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Chang Ray-Yun & Hu Jin-Li & Lin Yan-Shu, 2018. "The Choice of Prices versus Quantities under Outsourcing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-20, July.
    2. Wei, Liqun & Zhang, Jianxiong, 2021. "Strategic substitutes or complements? The relationship between capacity sharing and postponement flexibility," European Journal of Operational Research, Elsevier, vol. 294(1), pages 138-148.
    3. Luciano Fanti & Marcella Scrimitore, 2017. "The endogeneous choice of delegation in a duopoly with outsourcing to the rival," Discussion Papers 2017/219, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. Fang, Debin & Wang, Jiancheng, 2020. "Horizontal capacity sharing between asymmetric competitors," Omega, Elsevier, vol. 97(C).
    5. Liang Guo & Xiaole Wu, 2018. "Capacity Sharing Between Competitors," Management Science, INFORMS, vol. 64(8), pages 3554-3573, August.
    6. Chul-Hi Park & Toshihiro Matsumura & Sang-Ho Lee, 2022. "Procurement of advanced inputs and welfare-reducing vertical integration," Journal of Economics, Springer, vol. 135(3), pages 255-283, April.

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    More about this item

    Keywords

    Outsourcing; Cournot duopoly; Bertrand duopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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