The make-or-buy choice in a mixed oligopoly: a theoretical investigation
We take a game theory approach to study the make-or-buy decisions of firms in a mixed duopoly. We assume that a managerial firm and a profit-oriented firm compete in a duopoly market for a final good, and they can choose whether making an intermediate input or buying it from a monopolistic upstream firm. We find that different equilibria may arise, depending on parameter constellations. In particular, if the technology used for the production of the intermediate input is too costly, then the internal organization of firms at equilibrium is mixed, creating a conflict with social preferences that would always privilege vertical integration to outsourcing.
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- Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May.
- Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
- Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
- Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
- Pol Antràs & Elhanan Helpman, 2003.
NBER Working Papers
10082, National Bureau of Economic Research, Inc.
- Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
- Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
- Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
- John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-40, December.
- repec:hrv:faseco:4784029 is not listed on IDEAS
- Patrizio Bianchi & Sandrine Labory & Daniele Paci, 2006. "Small and Medium-sized Enterprise Policies in Europe, Latin America and Asia," Chapters, in: International Handbook on Industrial Policy, chapter 19 Edward Elgar.
- David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
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