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Economies of Scale and (Non)Existence of Strategic Outsourcing in Cournot Duopoly

Author

Listed:
  • Uday Bhanu Sinha

    (Delhi School of Economics)

Abstract

In the presence of economies of scale, the existence of strategic outsourcing equilibrium in a Cournot duopoly market crucially depends on the existence of input market. We show that when an input market exists with the input supplier charging an appropriate price for the input, the strategic outsourcing equilibrium exists for some values of the parameters. However, if the input supplier and the final good producers all have an identical technology for input production, the paper shows that no strategic outsourcing equilibrium exists and the market becomes either a duopoly or a monopoly with vertically integrated production process.

Suggested Citation

  • Uday Bhanu Sinha, 2016. "Economies of Scale and (Non)Existence of Strategic Outsourcing in Cournot Duopoly," Economics Bulletin, AccessEcon, vol. 36(3), pages 1260-1266.
    • Handle: RePEc:ebl:ecbull:eb-16-00376
    as

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    References listed on IDEAS

    as
    1. Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November.
    2. Anil Arya & Brian Mittendorf & David E. M. Sappington, 2008. "The Make-or-Buy Decision in the Presence of a Rival: Strategic Outsourcing to a Common Supplier," Management Science, INFORMS, vol. 54(10), pages 1747-1758, October.
    3. Nickerson, Jack A. & Vanden Bergh, Richard, 1999. "Economizing in a context of strategizing: governance mode choice in Cournot competition," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 1-15, September.
    4. Tarun Kabiraj & Uday Bhanu Sinha, 2011. "Strategic Outsourcing with Technology Transfer," Working papers 203, Centre for Development Economics, Delhi School of Economics.
    5. Yutian Chen, 2011. "Strategic sourcing for entry deterrence and tacit collusion," Journal of Economics, Springer, vol. 102(2), pages 137-156, March.
    6. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
    7. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Tarun Kabiraj & Uday Bhanu Sinha, 2017. "Outsourcing under incomplete information," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 10(1), pages 3-15, April.

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    More about this item

    Keywords

    Economies of scale; outsourcing; in-house production.;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • D2 - Microeconomics - - Production and Organizations

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