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Strategic Outsourcing Revisited

  • Haucap, Justus


    (Helmut Schmidt University, Hamburg)

  • Buehler, Stefan


    (University of Zurich and University of St. Gallen)

This paper analyzes a sequential game where firms decide about outsourcing the production of a non-specific input good to an imperfectly competitive input market. We apply the taxonomy of business strategies introduced by Fudenberg and Tirole (1984) to characterize the different equilibria. We find that outsourcing generally softens competition in the final product market. If firms anticipate the impact of their outsourcing decisions on input prices, there may be equilibria where firms outsource so as to collude or to raise rivals’ costs. We illustrate our analysis using a linear Cournot model.

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Paper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number 15/2003.

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Length: 24 pages
Date of creation: 14 Jul 2003
Date of revision:
Handle: RePEc:ris:vhsuwp:2003_015
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  8. Andreas Polk, 2002. "Multilateral Agreement On Investments (MAI) - A Critical Assessment From an Industrial Economics Point of View," SOI - Working Papers 0201, Socioeconomic Institute - University of Zurich, revised Feb 2002.
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