Strategic Outsourcing Revisited
Journal
Journal of Economic Behavior & Organization
ISSN
0167-2681
ISSN-Digital
1879-1751
Type
journal article
Date Issued
2006-11-01
Author(s)
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 and 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.
Language
English
Keywords
Outsourcing
Oligopoly
Business strategy
Input prices
Vertical structure
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Elsevier
Publisher place
Amsterdam
Volume
61
Number
3
Start page
325
End page
338
Pages
14
Subject(s)
Eprints ID
51412