Outsourcing motives, competitiveness and taxation
AbstractThis paper shows the strategic aspects of international outsourcing in an oligopolistic market, if outsourcing is attractive because of fixed cost savings. We show that outsourcing decisions are strategic substitutes. Furthermore, we demonstrate that due to decreasing individual output, intensified competition increases the incentive to save fixed costs of integrated production and thus leads to more outsourcing. Additionally, we analyse how domestic costs and taxation affect the equilibrium level of outsourcing and employment. Here, we find that lower domestic costs decrease the proportion of outsourcing and therefore, increase employment. Concerning the impact of taxation, we find that a lower consumption tax on output decreases outsourcing. In case of a reversed outsourcing motivation, where outsourcing is associated with lower marginal costs but higher fixed costs than the domestic production, we show that the opposite effects concerning competition and taxation occur. --
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Bibliographic InfoPaper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2010/33.
Date of creation: 2010
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outsourcing; cost structure; Cournot-competition; taxation;
Find related papers by JEL classification:
- D20 - Microeconomics - - Production and Organizations - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-BEC-2011-02-05 (Business Economics)
- NEP-CSE-2011-02-05 (Economics of Strategic Management)
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