THE OUTSOURCING DECISION: A STRATEGIC FRAMEWORK

Outsourcing grew rapidly during the 1990s and has now become an accepted dimension of corporate strategy. While outsourcing continues to grow in importance, the nature and focus of outsourcing is evolving. Historically, most outsourcing took place in manufacturing industries, but it is now spreading rapidly within service industries. Whether in manufacturing or services, outsourcing is becoming increasingly cross- national and global. The growth of international outsourcing has accentuated controversy surrounding trade liberalization efforts in developed economies, especially in the United States.outsourcing, trade liberalization, international trade

A Simple Theory of Predation

We propose a simple theory of predatory pricing, based on scale economies and sequential buyers (or markets). The entrant (or prey) needs to reach a critical scale to be successful. The incumbent (or predator) is ready to make losses on earlier buyers so as to deprive the prey of the scale it needs, thus making monopoly profits on later buyers. Several extensions are considered, including markets where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterised by common costs. Conditions under which predation may take place in actual cases are also discussed.Anticompetitive Behaviour, Exclusion, Below-Cost Pricing, Antitrust

Market Frictions, Governance and Economic Rents: Taking Stock and Looking Ahead

This paper develops a more unified organizational economics theory within Strategy. We begin with perfectly competitive markets derived from the first fundamental welfare theorem of economics, and develop a parsimonious typology of market frictions. We show how two primary questions in Strategy--why firms exist and why some firms outperform others--can be evaluated from this market frictions logic. Building on this logic enables more systematic explanations and predictions concerning governance structures and economic rents in Strategy research.

A Simple Theory of Predation

We propose a simple theory of predatory pricing, based on incumbency advantages, scale economies and sequential buyers (or markets). The prey needs to reach a critical scale to be successful. The incumbent (or predator) has an initial advantage and is ready to make losses on earlier buyers so as to deprive the prey of the scale the latter needs, thus making monopoly profits on later buyers. Several extensions are considered, including cases where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterized by common costs. Conditions under which predation may take place in actual cases are also discussed.

Four Futures for Finance; A scenario study

This document presents four scenarios for the future of finance. The goal of our study is to imagine the future of finance and to identify challenges faced by policymakers in fighting systemic risk. It builds upon a tradition within the CPB to develop scenarios for policy analysis. We develop four scenarios for the future of finance. Our scenarios differ in two dimensions. First, to what extent soft information lies at the core of banks’ business. Second, to what extent scope economies exist between different banking activities. By combining these two dimensions, we obtain four scenarios: Isolated Islands, Big Banks, Competing Conglomerates, and Flat Finance. Market structure, market failures, and government failures vary between scenarios. These differences then translate into differences in the complexity of balance sheets, the ability to coordinate policy internationally, the information gap faced by regulators, the size of banks’ balance sheets, the tradability of banks’ assets, the level of interconnectedness, the potential for market discipline, and the threat of regulatory capture. As a result, each scenario calls for a different set of policies to combat systemic risk.

Production costs, scope economies, and multi-client outsourcing under quantity competition

Two game models are developed based on production costs and scope economies to investigate the widely observed multi-client outsourcing (MCO) phenomenon. Analytical results demonstrate that outsourcers’ high in-house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor. Under certain conditions, if both firms make their outsourcing decisions simultaneously, collective outsourcing is one of the two equilibria; if both firms make decisions sequentially, collective outsourcing becomes the unique equilibrium. Furthermore, the comparative statics of the critical degree of scope economies are examined for the occurrence of MCO with regard to diverse market parameters. Finally, it is proved that market prices decrease as the degree of scope economies increases when MCO occurs. This research helps explain some widely observed phenomena such as malls, supply chain cities, and the China price

The Essential Role of Securities Regulation

This Article posits that the essential role of securities regulation is to create a competitive market for sophisticated professional investors and analysts (information traders). The Article advances two related theses-one descriptive and the other normative. Descriptively, the Article demonstrates that securities regulation is specifically designed to facilitate and protect the work of information traders. Securities regulation may be divided into three broad categories: (i) disclosure duties; (ii) restrictions on fraud and manipulation; and (iii) restrictions on insider trading-each of which contributes to the creation of a vibrant market for information traders. Disclosure duties reduce information traders\u27 costs of searching and gathering information. Restrictions on fraud and manipulation lower information traders\u27 cost of verifying the credibility of information, and thus enhance information traders\u27 ability to make accurate predictions. Finally, restrictions on insider trading protect information traders from competition from insiders that would undermine information traders\u27 ability to recoup their investment in information. Normatively, the Article shows that information traders can best underwrite efficient and liquid capital markets, and, hence, it is this group that securities regulation should strive to protect. Our account has important implications for several policy debates. First, our account supports the system of mandatory disclosure. We show that, although market forces may provide management with an adequate incentive to disclose at the initial public offering (IPO) stage, they cannot be relied on to effect optimal disclosure thereafter. Second, our analysis categorically rejects calls to limit disclosure duties to hard information and self-dealing by management. Third, our analysis supports the use of the fraud-on-the-market presumption in all fraud cases even when markets are inefficient. Fourth, our analysis suggests that in cases involving corporate misstatements, the appropriate standard of care should, in principle, be negligence, not fraud

Needs, Modes and Efficiency of Economic Organizations and Public Interventions in Agriculture

There has been a fundamental development in theory and understanding of market, private, collective and public organizations in recent years. This paper incorporates achievements of the interdisciplinary New Institutional and Transaction Costs Economics (combining Economics, Organization, Law, Sociology, Behavioral and Political Sciences) and suggests a framework for assessing the needs and efficiency of economic organizations and public interventions in agriculture. Our new approach includes: study of farm and other agrarian organizations as a governing rather than production structure; assessment of comparative efficiency of alternative market, contract, internal, and hybrid modes of governance; analysis of level of transaction costs and their institutional (distribution and enforcement of de-facto rights between individuals, groups, organizations), behavioral (agents preferences, ability, bounded rationality, tendency for opportunism, risk aversion, trust), dimensional (frequency, uncertainty, assets specificity, and appropriability of transactions), natural, and technological factors; determination of effective horizontal and vertical boundaries of farms and other agrarian organizations; specification of the economic role of government and the needs for public interventions in agrarian sector; assessment of comparative of alternative forms of public involvement in agrarian sector (partnership, regulation, taxation, assistance, provision, in house organization, fundamental property rights modernization). The paper provides new powerful tools for understanding the agrarian organizations and their efficiency, and for improvement of public policies, collective actions, farming and business strategies, and academic analyses in that important sector of social life.market, private and public modes of governance, efficiency of farms and agrarian organizations, agricultural policies, transaction costs, New Institutional Economics

The Essential Role of Securities Regulation

This Article posits that the essential role of securities regulation is to create a competitive market for sophisticated professional investors and analysts (information traders). The Article advances two related theses-one descriptive and the other normative. Descriptively, the Article demonstrates that securities regulation is specifically designed to facilitate and protect the work of information traders. Securities regulation may be divided into three broad categories: (i) disclosure duties; (ii) restrictions on fraud and manipulation; and (iii) restrictions on insider trading-each of which contributes to the creation of a vibrant market for information traders. Disclosure duties reduce information traders\u27 costs of searching and gathering information. Restrictions on fraud and manipulation lower information traders\u27 cost of verifying the credibility of information, and thus enhance information traders\u27 ability to make accurate predictions. Finally, restrictions on insider trading protect information traders from competition from insiders that would undermine information traders\u27 ability to recoup their investment in information. Normatively, the Article shows that information traders can best underwrite efficient and liquid capital markets, and, hence, it is this group that securities regulation should strive to protect. Our account has important implications for several policy debates. First, our account supports the system of mandatory disclosure. We show that, although market forces may provide management with an adequate incentive to disclose at the initial public offering (IPO) stage, they cannot be relied on to effect optimal disclosure thereafter. Second, our analysis categorically rejects calls to limit disclosure duties to hard information and self-dealing by management. Third, our analysis supports the use of the fraud-on-the-market presumption in all fraud cases even when markets are inefficient. Fourth, our analysis suggests that in cases involving corporate misstatements, the appropriate standard of care should, in principle, be negligence, not fraud

Choosing an organisational form: the case of collaborative procurement initiatives

This paper deals with different organisational forms of collaborative procurement and provides insight into when to use which form. Different forms from the literature are compared with empirical examples to give an overview of forms, which are then described in terms of strategy, skills and organisation. Whilst acknowledging variations, the paper distinguishes between two main forms: virtual networks and third-party organisations. Using empirical data and four theoretical perspectives (transaction cost economics, resource-based view, contingency theory, agency theory), the paper reflects on when which form can be used and presents an overall framework to help choose an organisational for