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Strategic Outsourcing Revisited

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  • Stefan Buehler

    ()
    (Socioeconomic Institute, University of Zurich)

  • Justus Haucap

    ()
    (University of the Federal Armed Forces, Hamburg)

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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Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - 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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Keywords: strategic outsourcing; Cournot model;

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References

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  1. 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.
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  6. Yves Schneider & Peter Zweifel, 2002. "How Much Internalization of Nuclear Risk Through Liability Insurance?," SOI - Working Papers 0211, Socioeconomic Institute - University of Zurich.
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  18. Daniel Halbheer & Sarah Niggli & Armin Schmutzler, 2003. "What does it take to sell Environmental Policy? An empirical Analysis of Referendum Data," SOI - Working Papers 0304, Socioeconomic Institute - University of Zurich, revised Apr 2005.
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Citations

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Cited by:
  1. Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Cowles Foundation Discussion Papers 1589, Cowles Foundation for Research in Economics, Yale University.
  2. Frode Meland & Odd Rune Straume, 2006. "Outsourcing in Contests," CESifo Working Paper Series 1658, CESifo Group Munich.
  3. Simon Loertscher & Yves Schneider, 2005. "Switching Costs, Firm Size, and Market Structure," SOI - Working Papers 0508, Socioeconomic Institute - University of Zurich.
  4. Tarun Kabiraj & Uday Bhanu Sinha, 2011. "Strategic Outsourcing with Technology Transfer," Working papers 203, Centre for Development Economics, Delhi School of Economics.
  5. Chen, Yutian & Sen, Debapriya, 2010. "Strategic Outsourcing under Economies of Scale," MPRA Paper 20763, University Library of Munich, Germany.
  6. Yutian Chen, 2010. "Strategic Outsourcing between Rivals," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 301-311, November.
  7. Angela Triguero, & Carmen Díaz Mora, . "Why do some firms contract out production?," Studies on the Spanish Economy 232, FEDEA.
  8. Buehler, Stefan & Burghardt, Dirk, 2013. "Globalization and Vertical Structure: An Empirical Investigation," Economics Working Paper Series 1310, University of St. Gallen, School of Economics and Political Science.
  9. Yutian Chen, 2011. "Strategic sourcing for entry deterrence and tacit collusion," Journal of Economics, Springer, vol. 102(2), pages 137-156, March.
  10. Tarun Kabiraj & Uday Bhanu Sinha, 2014. "Strategic Outsourcing with Technology Transfer under Cournot Competition," Economics Bulletin, AccessEcon, vol. 34(2), pages 1133-1140.

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