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Integration versus Outsourcing in Stable Industry Equilibrium with Communication Networks

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  • Okamoto, Yusuke
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    Abstract

    For the selection of a firm's structure between vertical integration and arm's-length outsourcing, the importance of the thickness of the market had been emphasized in the previous literature. Here we take account of communication networks such as telephone, telex, fax, and the Internet. By doing so, we could illustrate the relationship between communication networks and the make-or-buy decision. With communication network technology differing in each type of firm, both vertically integrated firms and arm's-length outsourcing firms coexist, which was never indicated in the previous literature. However, when common network technology is introduced, such coexistence generically does not occur.

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    File URL: http://ir.ide.go.jp/dspace/bitstream/2344/144/3/ARRIDE_Discussion_No.54_Okamoto.pdf
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 54.

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    Date of creation: Mar 2006
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    Publication status: Published in IDE Discussion Paper. No. 54. 2006.3
    Handle: RePEc:jet:dpaper:dpaper54

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    Related research

    Keywords: Communication networks; Vertical integration; Communication; Network; Industrial management; Telecommunication; 336;

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    1. Gene M. Grossman & Elhanan Helpman, 2005. "Outsourcing in a Global Economy," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 135-159.
    2. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
    3. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," Working Papers 148, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
    4. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers 1996_21, Columbia University, Department of Economics.
    5. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
    8. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    9. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
    10. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
    11. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
    12. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
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