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A Simple Model of Outsourcing with Cournot Competition

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  • Michael Hübler

Abstract

The paper analyses a partial equilibrium outsourcing model with Cournot competition in intermediate good production. Final production is located in western Europe, whereas the intermediate good can be manufactured by a western (outsourcing) or eastern European supplier (offshore outsourcing). Interregional production (factor) allocation depending on factor prices and productivity levels is investigated analytically and graphically. The main results are: Higher production costs in one region reduce intermediate good production in both regions leading to a substitution effect between high- and low-skilled labour intensive inputs rather than between eastern and western low-skilled labour intensive inputs. The sensitivity of outsourcing activities to production cost changes is highest when the interregional cost differential is smallest.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1320.

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Length: 28 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:kie:kieliw:1320

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Keywords: Offshoring; outsourcing; Cournot competition; intermediate good;

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  21. Marin, Dalia, 2004. "A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany," CEPR Discussion Papers 4358, C.E.P.R. Discussion Papers.
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  23. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.
  24. Gustav A. Horn & Stefanie Behncke, 2004. "Deutschland ist keine Basarökonomie," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 71(40), pages 583-589.
  25. Magnus Blomstrom & Linda S. Goldberg, 2001. "Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey," NBER Books, National Bureau of Economic Research, Inc, number blom01-1, octubre-d.
  26. Subhayu Bandyopadhyay & Howard J. Wall, 2005. "Oligopoly and Outsourcing
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