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Strategic Outsourcing Revisited

Author

Listed:
  • Justus Haucap

    (Helmut Schmidt University, Hamburg)

  • Stefan Buehler

    (University of Zurich and University of St. Gallen)

Abstract

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 rivalsâÃÂàcosts. We illustrate our analysis using a linear Cournot model.

Suggested Citation

  • Justus Haucap & Stefan Buehler, 2003. "Strategic Outsourcing Revisited," Working Paper 15/2003, Helmut Schmidt University, Hamburg.
    • Handle: RePEc:ris:vhsuwp:2003_015
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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