Outsourcing Induced by Strategic Competition

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Outsourcing Induced by Strategic Competition

Author Info

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

Additional information is available for the following registered author(s):

Debapriya Sen

Abstract

We show that intermediate goods can be sourced to firms on the "outside" (that do not compete in the final product market), even when there are no economies of scale or cost advantages for these firms. What drives the phenomenon is that "inside" firms, by accepting such orders, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final product. Thus they have incentive to quote high provider prices to ward off future competitors, driving the latter to source outside.

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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1589.

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Length: 21 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:cwl:cwldpp:1589

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Paper
- Chen, Yutian & Dubey, Pradeep & Sen, Debapriya, 2009. "Outsourcing induced by strategic competition," MPRA Paper 14899, University Library of Munich, Germany. [Downloadable!]
- Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Levine's Bibliography 321307000000000674, UCLA Department of Economics. [Downloadable!]

Find related papers by JEL classification:
D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
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

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-11-04 (All new papers)
NEP-BEC-2006-11-04 (Business Economics)
NEP-COM-2006-11-04 (Industrial Competition)
NEP-CSE-2006-11-04 (Economics of Strategic Management)
NEP-IND-2006-11-04 (Industrial Organization)
NEP-MIC-2006-11-04 (Microeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Pierce, Andrea & Sen, Debapriya, 2009. "Outsourcing versus technology transfer: Hotelling meets Stackelberg," MPRA Paper 15673, University Library of Munich, Germany. [Downloadable!]

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