Outsourcing Versus Fdi In Oligopoly Equilibrium
AbstractWe consider the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Factor price considerations dictate that firms acquire the intermediate abroad, by either producing it in a wholly owned subsidiary or outsourcing it to a supplier who must make a relationship specific investment. Firms’ internationalisation mode depends on cost and strategic considerations. Crucially, asymmetric equilibria emerge, with firms choosing different modes of internationalisation, even when they are ex-ante identical. With ex-ante asymmetries, lower cost producers have a stronger incentive to vertically integrate (FDI), while higher cost firms are more likely to outsource.
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Bibliographic InfoPaper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 215.
Length: 21 pages
Date of creation: Aug 2008
Date of revision:
Outsourcing; Foreign Direct Investment; Trade Liberalisation; Oligopoly;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-20 (All new papers)
- NEP-COM-2008-09-20 (Industrial Competition)
- NEP-INT-2008-09-20 (International Trade)
- NEP-MIC-2008-09-20 (Microeconomics)
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.:
- Dermot Leahy, & Catia Montagna, .
"‘Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure,"
07/05, University of Nottingham, GEP.
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- Dermot Leahy & Catia Montagna, 2006. "'Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Dundee Discussion Papers in Economics 197, Economic Studies, University of Dundee.
- Eiichi Tomiura, 2005.
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Discussion Paper Series
168, Research Institute for Economics & Business Administration, Kobe University.
- Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
- Nickerson, Jack A. & Vanden Bergh, Richard, 1999. "Economizing in a context of strategizing: governance mode choice in Cournot competition," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 1-15, September.
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