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Vertical Integration Versus Outsourcing in Industry Equilibrium

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  • Bin Wang

    (China Center for Economic Research)

Abstract

We study the determinants of the extent of in-house vertical integration and of outsourcing in foreign countries. Potential suppliers must make a relationship-specific investment in order to serve each prospective customer. Such investments are governed by imperfect contracts. A final-good producer can manufacture components for it, but the per-unit cost is higher than for specialized suppliers. We consider how the size of the cost differential, the trade costs of components, the relative costs of searching in south country for final producers, the relative cost of customizing inputs affect the organization of industry protection.

Suggested Citation

  • Bin Wang, 2006. "Vertical Integration Versus Outsourcing in Industry Equilibrium," Microeconomics Working Papers 22007, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:microe:22007
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    File URL: http://www.eaber.org/node/22007
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    References listed on IDEAS

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    1. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Hübler, Michael, 2007. "A simple model of outsourcing with Cournot competition," Kiel Working Papers 1320, Kiel Institute for the World Economy (IfW Kiel).
    2. Joseph Pelzman, 2013. "“Womb for Rent”: International Service Trade Employing Assisted Reproduction Technologies (ARTs)," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 387-400, August.

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    More about this item

    Keywords

    Outsourcing; Vertical Integration; Customization; Search Cost;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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