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Strategic Outsourcing Revisited

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Author Info
Stefan Buehler () (Socioeconomic Institute, University of Zurich)
Justus Haucap () (University of the Federal Armed Forces, Hamburg)

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Abstract

This paper analyzes a sequential game where firms decide about outsourcing the production of a non-specific input good to an imperfectly competitive input market. We apply the taxonomy of business strategies introduced by Fudenberg and Tirole (1984) to characterize the different equilibria. We find that outsourcing generally softens competition in the final product market. If firms anticipate the impact of their outsourcing decisions on input prices, there may be equilibria where firms outsource so as to collude or to raise rivals’ costs. We illustrate our analysis using a linear Cournot model.

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File URL: http://www.soi.uzh.ch/research/wp/2003/wp0305.pdf
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File Function: First version, 2003
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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0305.

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Length: 18 pages
Date of creation: Jul 2003
Date of revision:
Publication status: Published in Journal of Economic Behavior & Organization 6(3), 2006, pages 325-338
Handle: RePEc:soz:wpaper:0305

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Related research
Keywords: strategic outsourcing; Cournot model;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Yves Schneider & Peter Zweifel, 2004. "How Much Internalization of Nuclear Risk Through Liability Insurance?," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 219-240, December. [Downloadable!]
    Other versions:
  2. Rainer Winkelmann, 2002. "Subjektive Daten in der empirischen Wirtschaftsforschung: Probleme und Perspektiven," Working Papers 0207, University of Zurich, Socioeconomic Institute, revised Jul 2002. [Downloadable!]
  3. Stefan Buehler & Armin Schmutzler & Men-Andri Benz, 2002. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," Working Papers 0209, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  4. Andreas Polk & Armin Schmutzler, 2003. "Lobbying against Environmental Regulation vs. Lobbying for Loopholes," Working Papers 0301, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  5. Borek, Thomas & Bühler, Stefan & Schmutzler, Armin, 2003. "Weddings with Uncertain Prospects - Mergers under Asymmetric Information," CEPR Discussion Papers 3839, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," Working Papers 0212, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Angela Triguero, & Carmen Díaz Mora, . "Why do some firms contract out production?," Studies on the Spanish Economy 232, FEDEA. [Downloadable!]
  2. Frode Meland & Odd Rune Straume, 2006. "Outsourcing in Contests," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Chen, Yutian & Dubey, Pradeep & Sen, Debapriya, 2009. "Outsourcing induced by strategic competition," MPRA Paper 14899, University Library of Munich, Germany. [Downloadable!]
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