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

  • Dermot, Leahy
  • Catia, Montagna

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.

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File URL: https://mpra.ub.uni-muenchen.de/7468/1/MPRA_paper_7468.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7468.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:7468
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  1. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
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  22. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
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