The Choice of Prices versus Quantities under Outsourcing

Ray Yun Chang, Jin-Li Hu, Yan Shu Lin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This paper establishes a duopoly model with product differentiation and outsourcing in order to analyze the equilibrium competition strategies (choice of prices versus quantities) when the outsourcer outsources its intermediate good to a final product competitor. We show that: (1) both firms choose the quantity strategy when the cost efficiency of the subcontractor is low; (2) the choice of competition strategy is the price strategy for the subcontractor and the quantity strategy for the outsourcer when the cost efficiency of the subcontractor is moderate; (3) both firms choose the price strategy when the cost efficiency of the subcontractor is sufficiently high.

Original languageEnglish
Article number20160195
JournalB.E. Journal of Theoretical Economics
Volume18
Issue number2
DOIs
StatePublished - 13 Jan 2018

Keywords

  • competition strategy
  • intermediate market
  • outsourcing

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