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The Choice of Prices versus Quantities under Outsourcing

Author

Listed:
  • Chang Ray-Yun

    (Department of Economics, Chinese Culture University, Taipei, Taiwan)

  • Hu Jin-Li

    (Institute of Business and Management, National Chiao Tung University, Hsinchu, Taiwan)

  • Lin Yan-Shu

    (Department of Economics, National Dong Hwa University, Hualien, Taiwan)

Abstract

This paper establishes a duopoly model with product differentiation and outsourcing in order to analyze the equilibrium competition strategies (choice of prices versus quantities) when the outsourcer outsources its intermediate good to a final product competitor. We show that: (1) both firms choose the quantity strategy when the cost efficiency of the subcontractor is low; (2) the choice of competition strategy is the price strategy for the subcontractor and the quantity strategy for the outsourcer when the cost efficiency of the subcontractor is moderate; (3) both firms choose the price strategy when the cost efficiency of the subcontractor is sufficiently high.

Suggested Citation

  • Chang Ray-Yun & Hu Jin-Li & Lin Yan-Shu, 2018. "The Choice of Prices versus Quantities under Outsourcing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-20, July.
  • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:2:p:20:n:16
    DOI: 10.1515/bejte-2016-0195
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    References listed on IDEAS

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    Cited by:

    1. Michael Kopel & Eva Maria Putz, 2021. "Information sharing in a Cournot–Bertrand duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1645-1655, October.

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    More about this item

    Keywords

    competition strategy; outsourcing; intermediate market;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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