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Strategic investment and international outsourcing in unionised oligopoly

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  • Leahy, Dermot
  • Montagna, Catia

Abstract

We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms.

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File URL: http://repo.sire.ac.uk/handle/10943/151
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Bibliographic Info

Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-19.

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Date of creation: 2010
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Handle: RePEc:edn:sirdps:151

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Keywords: Outsourcing; Unionisation; Strategic Investment; Trade Liberalisation; Oligopoly;

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References

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Cited by:
  1. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.

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