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Partial outsourcing, monitoring cost, and market structure
Author(s) -
Shy Oz,
Stenbacka Rune
Publication year - 2005
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/j.0008-4085.2005.00320.x
Subject(s) - cournot competition , outsourcing , industrial organization , competition (biology) , novelty , production (economics) , microeconomics , set (abstract data type) , business , market structure , economics , computer science , marketing , ecology , philosophy , theology , programming language , biology
. We investigate firms’ outsourcing decisions when production requires a large number of inputs. The novelty of our approach is that it provides a testable framework to characterize the equilibrium fraction of outsourced inputs. We demonstrate that intensified competition in a Cournot market for the final good typically enlarges the set of outsourced components relative to those produced in‐house. The proportions of outsourced inputs are found to be strategic substitutes independently of whether firms compete with respect to quantities or prices in the market for the final good. JEL classification: D20, L22