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Partial outsourcing, monitoring cost, and market structure

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Abstract:

Abstract.  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

French
Sous‐traitance partielle, coût de monitarisation, et structure de marché. 

L’auteur examine les décisions de sous‐traitance des entreprises quand la production réclame un grand nombre d’intrants. La nouveauté de l’approche proposée est qu’elle fournit un cadre conceptuel testable pour définir en équilibre la fraction des intrants obtenue en sous‐traitance. On montre qu’une concurrence plus intense pour le produit final dans un marchéà la Cournot accroît l’ensemble des intrants obtenus en sous‐traitance par rapport à l’ensemble de ceux qui sont produit à l’interne. Il s’avère que les proportions des divers intrants obtenus en sous‐traitance sont des substituts – que les firmes se concurrencent par les prix ou les quantités dans le marché du produit final.

Document Type: Research Article

DOI: https://doi.org/10.1111/j.0008-4085.2005.00320.x

Affiliations: 1: WZB – Social Science Research Center Berlin 2: Department of Economics, Swedish School of Economics

Publication date: 2005-11-01

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