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Scope economies, market information, and make-or-buy decision under asymmetric information

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  • Xu, Su Xiu
  • Lu, Qiang
  • Huang, George Q.
  • Zhang, Ting

Abstract

This paper presents a make-or-buy (M–B) model in which a firm (say Firm 1) may produce in-house, or outsource a product to the unique vendor, the monopolist in the outsourcing market. Demand for the finished product is stochastic and price-sensitive, and Firm 1's information forecast about the base market demand and corresponding precision are known when the M–B decision is faced. Firm 1 is risk-neutral and owns a constant-return-to-scale technology, while the vendor is risk-averse and enjoys the advantage of scope economies. A traditional solution is provided under perfect information.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:proeco:v:145:y:2013:i:1:p:339-348
    DOI: 10.1016/j.ijpe.2013.05.002
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