On the Economics of Subcontracting
AbstractIn a situation where firms compete for a contract of an agency and subcontract part of this contract it is shown that: (i) If the timing of subcontracting is determined by the firms,then the more efficient firms subcontract after the award, while the less efficient firms subcontract before the award. (ii) Depending on the market structure, using a Dutch auction can be preferable to an English auction when subcontracting takes place before the award. (iii) To foster competition among subcontractors, a firm should not always subcontract even if subcontractors are cheaper than producing in-house. (iv) The agency when deciding on the timing of subcontracting faces a trade-off between a competition enhancing effect and an efficiency effect.
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Bibliographic InfoArticle provided by SIPI Spa in its journal Rivista di Politica Economica.
Volume (Year): 96 (2006)
Issue (Month): 1 (January-February)
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Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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