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Economies of Scope and Patterns of Global Outsourcing
Author(s) -
Yu Zhihao
Publication year - 2012
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2012.01060.x
Subject(s) - outsourcing , scope (computer science) , economies of scope , production (economics) , industrial organization , product (mathematics) , space (punctuation) , economics , business , microeconomics , commerce , marketing , economies of scale , computer science , mathematics , geometry , programming language , operating system
This paper develops a model with two Salop circles representing the product space of the intermediate input suppliers and the final‐good producers. First, it is shown that economies of scope in production are the necessary condition for outsourcing. Second, the propensity to outsource exhibits a U ‐shape relationship depending on an intricate combination of the degree of economies of scope and product differentiation of the intermediate input suppliers. Third, an improvement of production technology can have ambiguous effects on the propensity to outsource.