Kiel Working Papers, Kiel Institute for World Economics
No 1320:
A Simple Model of Outsourcing with Cournot Competition
Michael Hübler
Abstract: The paper analyses a partial equilibrium outsourcing model
with Cournot competition in intermediate good production. Final production
is located in western Europe, whereas the intermediate good can be
manufactured by a western (outsourcing) or eastern European supplier
(offshore outsourcing). Interregional production (factor) allocation
depending on factor prices and productivity levels is investigated
analytically and graphically. The main results are: Higher production costs
in one region reduce intermediate good production in both regions leading
to a substitution effect between high- and low-skilled labour intensive
inputs rather than between eastern and western low-skilled labour intensive
inputs. The sensitivity of outsourcing activities to production cost
changes is highest when the interregional cost differential is smallest.
Keywords: Offshoring, outsourcing, Cournot competition, intermediate good; (follow links to similar papers)
JEL-Codes: D24,; D43,; F20,; J31; (follow links to similar papers)
28 pages, March 2007
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