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

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  • Dermot Leahy,
  • Catia Montagna

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.

Suggested Citation

  • Dermot Leahy, & Catia Montagna, 2007. "‘Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Discussion Papers 07/05, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:07/05
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    References listed on IDEAS

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    Cited by:

    1. Franz-Josef Bade & Eckhardt Bode & Eleonora Cutrini, 2015. "Spatial fragmentation of industries by functions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(1), pages 215-250, January.
    2. Holger Görg & Aoife Hanley, 2011. "Services Outsourcing And Innovation: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 321-333, April.
    3. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.
    4. Sujata Basu, "undated". "R & D Sector Outsourcing, Human Capital Formation and Growth in the Context of Developed versus Developing Economies," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-05, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    5. Eckhardt Bode & Franz-Josef Bade Bade & Eleonora Cutrini Cutrini, 2011. "Domestic and International Offshoring of Tasks," ERSA conference papers ersa11p1840, European Regional Science Association.
    6. Dermot Leahy & Catia Montagna, 2009. "Outsourcing vs FDI in Oligopoly Equilibrium," Spatial Economic Analysis, Taylor & Francis Journals, vol. 4(2), pages 149-166.
    7. Dermot Leahy & Catia Montagna, 2008. "Outsourcing Versus Fdi In Oligopoly Equilibrium," Dundee Discussion Papers in Economics 215, Economic Studies, University of Dundee.

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    More about this item

    Keywords

    Outsourcing; Vertical Integration; Trade Liberalisation; Oligopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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