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‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure

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  • Dermot, Leahy
  • Catia, Montagna

Abstract

We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.

Suggested Citation

  • Dermot, Leahy & Catia, Montagna, 2007. "‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure," MPRA Paper 7468, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:7468
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    References listed on IDEAS

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    Cited by:

    1. Holger Görg & Aoife Hanley, 2011. "Services Outsourcing And Innovation: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 321-333, April.
    2. Dermot Leahy & Catia Montagna, 2009. "Outsourcing vs FDI in Oligopoly Equilibrium," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 149-166.
    3. Franz-Josef Bade & Eckhardt Bode & Eleonora Cutrini, 2015. "Spatial fragmentation of industries by functions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 215-250, January.
    4. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.
    5. Sujata Basu, "undated". "R & D Sector Outsourcing, Human Capital Formation and Growth in the Context of Developed versus Developing Economies," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-05, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    6. Leahy, Dermot & Montagna, Catia, 2008. "Outsourcing versus FDI in oligopoly equilibrium," SIRE Discussion Papers 2008-39, Scottish Institute for Research in Economics (SIRE).
    7. Eckhardt Bode & Franz-Josef Bade Bade & Eleonora Cutrini Cutrini, 2011. "Domestic and International Offshoring of Tasks," ERSA conference papers ersa11p1840, European Regional Science Association.

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    More about this item

    Keywords

    Outsourcing; Vertical Integration; Trade Liberalisation; Oligopoly;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • F2 - International Economics - - International Factor Movements and International Business
    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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