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Outsourcing and Vertical Integration in a Competitive Industry

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  • Ciliberto, Federico
  • Panzar, John

Abstract

We develop a partial equilibrium, perfectly competitive framework of a (potentially) vertically integrated industry. There are three types of firms: upstream firms that use primary factors to produce an intermediate; downstream firms that use primary factors and intermediates to produce a final good; and vertically integrated firms that do both. We establish conditions under which vertically integrated firms exist and outsource (part of) the production of the intermediate input. We study the changes in industry configurations resulting from changes in costs and demand.

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File URL: http://mpra.ub.uni-muenchen.de/18534/
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File URL: http://mpra.ub.uni-muenchen.de/38628/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18534.

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Date of creation: 30 Oct 2009
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Handle: RePEc:pra:mprapa:18534

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Keywords: Competitive Industry; Vertical Integration; Outsourcing;

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References

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  1. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-72, May.
  3. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, December.
  4. Eaton, B Curtis & Lemche, S Q, 1991. "The Geometry of Supply, Demand, and Competitive Market Structure with Economies of Scope," American Economic Review, American Economic Association, vol. 81(4), pages 901-11, September.
  5. MacDonald, Glenn M & Slivinski, Alan, 1987. "The Simple Analytics of Competitive Equilibrium with Multiproduct Firms," American Economic Review, American Economic Association, vol. 77(5), pages 941-53, December.
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Cited by:
  1. Roman Fossati, 2011. "Outsourcing versus Vertical Integration: A Dynamic Model of Industry Equilibrium," 2011 Meeting Papers 1421, Society for Economic Dynamics.

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