Outsourcing versus technology transfer: Hotelling meets Stackelberg
This paper considers a Hotelling duopoly with two firms A and B in the final good market. Both A and $B$ can produce the required intermediate good, firm B having a lower cost due to a superior technology. We compare two contracts: outsourcing (A orders the intermediate good from B) and technology transfer (B transfers its technology to A). First we show that an outsourcing order acts as a credible commitment on part of A to maintain a certain market share in the final good market. This generates an indirect Stackelberg leadership effect, which is absent in a technology transfer contract. We show that compared to the situation of no contracts, there are always Pareto improving outsourcing contracts but no Pareto improving technology transfer contracts. Finally, it is shown that whenever both firms prefer one of the two contracts, all consumers prefer the other contract.
|Date of creation:||11 Jun 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
- Nagaoka, Sadao, 2005.
"Determinants of high-royalty contracts and the impact of stronger protection of intellectual property rights in Japan,"
Journal of the Japanese and International Economies,
Elsevier, vol. 19(2), pages 233-254, June.
- Sadao Nagaoka, 2004. "Determinants of high-royalty contracts and the impact of stronger protection of intellectual property rights in Japan," Hi-Stat Discussion Paper Series d04-60, Institute of Economic Research, Hitotsubashi University.
- Yongmin Chen & Jota Ishikawa & Zhihao Yu, 2002.
"Trade Liberalization and Strategic Outsourcing,"
Carleton Economic Papers
02-12, Carleton University, Department of Economics, revised Jul 2004.
- Milgrom, Paul & Roberts, John, 1988. " Communication and Inventory as Substitutes in Organizing Production," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 275-89.
- Chen, Yutian & Dubey, Pradeep & Sen, Debapriya, 2009.
"Outsourcing induced by strategic competition,"
14899, University Library of Munich, Germany.
- Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Levine's Bibliography 321307000000000674, UCLA Department of Economics.
- Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Cowles Foundation Discussion Papers 1589, Cowles Foundation for Research in Economics, Yale University.
- Ryuhei Wakasugi & Banri Ito, 2009.
"The effects of stronger intellectual property rights on technology transfer: evidence from Japanese firm-level data,"
The Journal of Technology Transfer,
Springer, vol. 34(2), pages 145-158, April.
- Ryuhei Wakasugi & Banri Ito, 2007. "The Effects of Stronger Intellectual Property Rights on Technology Transfer: Evidence from Japanese Firm-level Data," KIER Working Papers 632, Kyoto University, Institute of Economic Research.
- Arya, Anil & Mittendorf, Brian & Sappington, David E.M., 2008. "Outsourcing, vertical integration, and price vs. quantity competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 1-16, January.
- Nickerson, Jack A. & Vanden Bergh, Richard, 1999. "Economizing in a context of strategizing: governance mode choice in Cournot competition," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 1-15, September.
- Pio Baake & Jörg Oechssler & Christoph Schenk, 1999. "Explaining cross-supplies," Journal of Economics, Springer, vol. 70(1), pages 37-60, February.
- Ziss, Steffen, 1993. "Entry deterrence, cost advantage and horizontal product differentiation," Regional Science and Urban Economics, Elsevier, vol. 23(4), pages 523-543, September.
- David L. Hummels & Jun Ishii & Kei-Mu Yi, 1999.
"The nature and growth of vertical specialization in world trade,"
72, Federal Reserve Bank of New York.
- Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
- Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
- Branstetter, Lee G. & Fisman, Raymond & Foley, C. Fritz, 2004.
"Do stronger intellectual property rights increase international technology transfer? Empirical evidence from U.S. firm-level panel data,"
Policy Research Working Paper Series
3305, The World Bank.
- Lee G. Branstetter & Raymond Fisman & C. Fritz Foley, 2006. "Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U. S. Firm-Level Panel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 321-349.
- Sharmila Vishwasrao, 2004.
"Royalties vs. fees: How do firms pay for foreign technology?,"
04023, Department of Economics, College of Business, Florida Atlantic University, revised Sep 2006.
- Vishwasrao, Sharmila, 2007. "Royalties vs. fees: How do firms pay for foreign technology?," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 741-759, August.
- Pedro Mendi, 2005.
"The Structure of Payments in Technology Transfer Contracts: Evidence from Spain,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 14(2), pages 403-429, 06.
- Pedro Mendi, 2003. "The Structure of Payments in Technology Transfer Contracts: Evidence from Spain," Faculty Working Papers 05/03, School of Economics and Business Administration, University of Navarra.
- Toshihiro Matsumura & Noriaki Matsushima & Giorgos Stamatopoulos, 2010. "Location equilibrium with asymmetric firms: the role of licensing," Journal of Economics, Springer, vol. 99(3), pages 267-276, April.
- BOCCARD, Nicolas & WAUTHY, Xavier, .
"Equilibrium payoffs in a Bertrand-Edgeworth model with product differentiation,"
CORE Discussion Papers RP
1867, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Xavier Wauthy & Nicolas Boccard, 2005. "Equilibrium payoffs in a Bertrand-Edgeworth model with product differentiation," Economics Bulletin, AccessEcon, vol. 12(11), pages 1-8.
- Xavier Wauthy, 1996. "Capacity constraints may restore the existence of an equilibrium in the Hotelling model," Journal of Economics, Springer, vol. 64(3), pages 315-324, October.
- Vidal, Carlos J. & Goetschalckx, Marc, 1997. "Strategic production-distribution models: A critical review with emphasis on global supply chain models," European Journal of Operational Research, Elsevier, vol. 98(1), pages 1-18, April.
- Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
- Toshihiro Matsumura & Noriaki Matsushima, 2009. "Cost differentials and mixed strategy equilibria in a Hotelling model," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 215-234, March.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:15673. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.