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On the Relationship between International Outsourcing and Price--Cost Margins in European Industries

  • Hartmut Egger

    ()

    (Socioeconomic Institute, University of Zurich, Zurichbergstr. 14, 8032 Zurich, Switzerland. Tel.: +41-1-634-2303; Fax: +41-1-634-4996)

  • Peter Egger

This paper sets up a model, where multinationals compete in quantities and domestic firms form a competitive fringe. Within this framework, we analyse the relationship between market concentration, international outsourcing and the industry price-cost margin. The empirical results of a panel of 66 industries and the EU12 countries in the 1990s strongly confirm our theoretical hypotheses. Market concentration and international outsourcing are positively related to industry price--cost margins. In a thought experiment, we show that industry price--cost margins would have decreased by 0.4 percentage points more in the 1990s, if international outsourcing had not changed since 1990. In addition, international outsourcing accounts for a convergence in margins across industries in the last decade.

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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 25 (2004)
Issue (Month): 1 (08)
Pages: 45-69

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Handle: RePEc:kap:revind:v:25:y:2004:i:1:p:45-69
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100336

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