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Offshore Outsourcing Induced by Domestic Providers

Author

Listed:
  • Yutian Chen

    () (Dept. of Economics, SUNY at Stony Brook)

  • Pradeep Dubey

    () (Center for Game Theory, Dept. of Economics, SUNY at Stony Brook and Cowles)

  • Debapriya Sen

    () (Dept. of Economics, SUNY at Stony Brook)

Abstract

We show that offshore outsourcing can occur even when there are no economies of scale or cost advantages for the foreign firms. What drives the phenomenon is that domestic firms, by accepting orders for intermediate goods, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final good. Thus they have incentive to quote high provider prices to ward off future competitors, compelling them to outsource offshore.

Suggested Citation

  • Yutian Chen & Pradeep Dubey & Debapriya Sen, 2005. "Offshore Outsourcing Induced by Domestic Providers," Department of Economics Working Papers 05-09, Stony Brook University, Department of Economics.
  • Handle: RePEc:nys:sunysb:05-09
    as

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    File URL: http://www.stonybrook.edu/commcms/economics/research/papers/2005/recent.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
    1. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
    2. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2004. "Trade liberalization and strategic outsourcing," Journal of International Economics, Elsevier, vol. 63(2), pages 419-436, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Offshore outsourcing; Cournot duopoly; Stackelberg duopoly;

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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