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Outsourcing in Contests

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  • Frode Meland
  • Odd Rune Straume

Abstract

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless the ex-post bargaining strength of the contest winner is sufficiently low and/or there are very few contestants. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.

Suggested Citation

  • Frode Meland & Odd Rune Straume, 2006. "Outsourcing in Contests," CESifo Working Paper Series 1658, CESifo.
    • Handle: RePEc:ces:ceswps:_1658
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    References listed on IDEAS

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    Cited by:

    1. Khaled Bennour, 2009. "The value of rents and the likelihood of conflicts," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(2), pages 163-173, June.
    2. De Frutos, María Ángeles & Espinosa Alejos, María Paz, 2012. "Resale in Auctions with Financial Constraints," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    3. Heijdra, Ben J. & Ligthart, Jenny E., 2010. "The Transitional Dynamics Of Fiscal Policy In Small Open Economies," Macroeconomic Dynamics, Cambridge University Press, vol. 14(1), pages 1-28, February.
    4. repec:dau:papers:123456789/179 is not listed on IDEAS
    5. Bos, Olivier, 2011. "How lotteries outperform auctions," Economics Letters, Elsevier, vol. 110(3), pages 262-264, March.

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    More about this item

    Keywords

    contests; outsourcing; bargaining; contest design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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