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Strategic investment and international outsourcing in unionised oligopoly

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  • Leahy, Dermot
  • Montagna, Catia

Abstract

We critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms.

Suggested Citation

  • Leahy, Dermot & Montagna, Catia, 2010. "Strategic investment and international outsourcing in unionised oligopoly," SIRE Discussion Papers 2010-19, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:151
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    Cited by:

    1. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.
    2. Kuang-Chung Hsu & Shinn-Juh Lin & Yungho Weng, 2015. "Do Labor Unions Hinder or Boost International Outsourcing? Evidence from U.S. Manufacturing," The International Trade Journal, Taylor & Francis Journals, vol. 29(2), pages 142-162, June.
    3. Santoni, Michele, 2014. "Product market integration and wage bargaining institutions," Labour Economics, Elsevier, vol. 27(C), pages 1-15.

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    More about this item

    Keywords

    Outsourcing; Unionisation; Strategic Investment; Trade Liberalisation; Oligopoly;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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