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Abstract

We analyse decisions of firms on outsourcing of intermediate goods and R&D investment. If firms choose in-house production, a high profit discount is incurred due to the inefficiency of producing the intermediate goods, whereas if firms search for and outsource to specialists, the production costs decrease, but an imitation risk arises by specialists, who may become competitors in the final-good market. Accordingly, patents are used to mitigate this possibility, which are costly. We show that in outsourcing, all firms outsource to the same specialist to minimise the possibility of successful imitation in equilibrium. Moreover, firms still invest in R\&D activities and outsource their intermediate goods with some patent protection even though the selected specialist put effort into imitation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25516.

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Date of creation: 28 Sep 2010
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Handle: RePEc:pra:mprapa:25516

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Related research

Keywords: Patents; Outsourcing; Imitation.;

Find related papers by JEL classification:

• D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
• D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

This paper has been announced in the following NEP Reports:

• NEP-ALL-2010-10-09 (All new papers)
• NEP-INO-2010-10-09 (Innovation)
• NEP-IPR-2010-10-09 (Intellectual Property Rights)
• NEP-TID-2010-10-09 (Technology & Industrial Dynamics)

References

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16. repec:bla:restud:v:72:y:2005:i:1:p:135-159 is not listed on IDEAS
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