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Production costs, scope economies, and multi-client outsourcing under quantity competition

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Listed:
  • Ni, Debing
  • Li, Kevin W.
  • Tang, Xiaowo

Abstract

Two game models are developed based on production costs and scope economies to investigate the widely observed multi-client outsourcing (MCO) phenomenon. Analytical results demonstrate that outsourcers' high in-house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor. Under certain conditions, if both firms make their outsourcing decisions simultaneously, collective outsourcing is one of the two equilibria; if both firms make decisions sequentially, collective outsourcing becomes the unique equilibrium. Furthermore, the comparative statics of the critical degree of scope economies are examined for the occurrence of MCO with regard to diverse market parameters. Finally, it is proved that market prices decrease as the degree of scope economies increases when MCO occurs. This research helps explain some widely observed phenomena such as malls, supply chain cities, and the China price.

Suggested Citation

  • Ni, Debing & Li, Kevin W. & Tang, Xiaowo, 2009. "Production costs, scope economies, and multi-client outsourcing under quantity competition," International Journal of Production Economics, Elsevier, vol. 121(1), pages 130-140, September.
  • Handle: RePEc:eee:proeco:v:121:y:2009:i:1:p:130-140
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gunasekaran, Angappa & Irani, Zahir & Choy, King-Lun & Filippi, Lionel & Papadopoulos, Thanos, 2015. "Performance measures and metrics in outsourcing decisions: A review for research and applications," International Journal of Production Economics, Elsevier, vol. 161(C), pages 153-166.
    2. Xu, Su Xiu & Lu, Qiang & Huang, George Q. & Zhang, Ting, 2013. "Scope economies, market information, and make-or-buy decision under asymmetric information," International Journal of Production Economics, Elsevier, vol. 145(1), pages 339-348.
    3. repec:eee:apmaco:v:292:y:2017:i:c:p:294-308 is not listed on IDEAS
    4. Mohammed Haoues & Mohammed Dahane & Nadia Kenza Mouss, 0. "Outsourcing optimization in two-echelon supply chain network under integrated production-maintenance constraints," Journal of Intelligent Manufacturing, Springer, vol. 0, pages 1-25.
    5. Han, Chaodong & Porterfield, Tobin & Li, Xiaolin, 2012. "Impact of industry competition on contract manufacturing: An empirical study of U.S. manufacturers," International Journal of Production Economics, Elsevier, vol. 138(1), pages 159-169.
    6. Vermeulen, B. & Huisman, K.J.M. & Kok, A.G. de, 2015. "Vertical governance change and product differentiation under decreasing component costs," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 65-76.

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