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‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure

By Leahy Dermot and Montagna Catia

Abstract

We study how competitive pressure influences the make-or-buy decision that oligopolistic firms face between producing an intermediate component in-house or purchasing it from a domestic supplier. We model outsourcing as a bilateral relationship in which the supplier undertakes relationship specific investments. A home and foreign firm compete in the home market. Firms’ mode of operation decision depends on cost and strategic considerations. Competitive pressure increases firms’ incentive to outsource. Consumer gains from trade liberalisation are enhanced when it leads to less outsourcing.

Topics: L2 - Firm Objectives, Organization, and Behavior, F2 - International Factor Movements and International Business, F1 - Trade, L1 - Market Structure, Firm Strategy, and Market Performance
Year: 2007
DOI identifier: 10.2139/ssrn.959411
OAI identifier: oai:mpra.ub.uni-muenchen.de:7468

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