Strategic Outsourcing with Technology Transfer

Tarun Kabiraj and Uday Sinha

No 203, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We analyze the outsourcing decision of a firm for a key input of a final good production to an independent input supplier even though the firm has an option of producing that key input in-house at a lower cost with a better technology. We find that for smaller technology gap with the independent input supplier the firm would outsource and for larger technology gap it would produce the input in-house for itself and for its rivals. The outsourcing occurs in order to take advantage of its sale of superior technology to the independent input supplier at a high payment although it involves a high price for the input to be acquired from the monopoly input supplier. Though the firm gains from strategic outsourcing, consumers’ welfare as well as social welfare goes down.

Keywords: outsourcing; technology transfer; vertical structure; competition; welfare (search for similar items in EconPapers)
JEL-codes: D43 L22 L23 L24 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-08
New Economics Papers: this item is included in nep-com and nep-cse
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Citations: View citations in EconPapers (4)

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