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Make-Or-Buy’ In International Oligopoly And The Role Of Competitive Pressure

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Author Info

  • Dermot Leahy

    ()
    (Economics Finance and Accounting, National University of Ireland, Maynooth)

  • Catia Montagna

    (University of Dundee and Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham)

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    Abstract

    We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship-specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.

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    Bibliographic Info

    Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1901107.pdf.

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    Length: 33
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:may:mayecw:n1901107.pdf

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    Postal: Maynooth, Co. Kildare
    Phone: 353-1-7083728
    Fax: 353-1-7083934
    Web page: http://economics.nuim.ie
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    Related research

    Keywords: Outsourcing; Vertical Integration; Trade Liberalisation; Oligopoly;

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    2. Yongmin Chen & Jota Ishikawa & Zhihao Yu, 2002. "Trade Liberalization and Strategic Outsourcing," Carleton Economic Papers 02-12, Carleton University, Department of Economics, revised Jul 2004.
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    4. Spencer, Barbara J & Qiu, Larry D, 2001. "Keiretsu and Relationship-Specific Investment: A Barrier to Trade?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 871-901, November.
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    8. 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.
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    15. Gorzig, Bernd & Andreas Stephan, 2003. "Outsourcing and Firm-level Performance," Royal Economic Society Annual Conference 2003 90, Royal Economic Society.
    16. 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.
    17. McLaren, J, 1996. "Supplier Relations and the Market Context : A Theory of Handshakes," Papers 766, Yale - Economic Growth Center.
    18. Holger Görg & Aoife Hanley, 2004. "Does Outsourcing Increase Profitability?," The Economic and Social Review, Economic and Social Studies, vol. 35(3), pages 267-288.
    19. 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.
    20. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
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