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Market thickness, sunk costs, productivity, and the outsourcing decision: an empirical analysis of manufacturing firms in France

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  • Liza Jabbour
Abstract
This paper presents an empirical analysis of outsourcing behaviour by French manufacturing industries. It focuses on the effects of market thickness, sunk costs, and the productivity of firms on the outsourcing decision. I estimate a dynamic probit model where outsourcing decision is linked to past outsourcing behaviour. The results show that outsourcing is a persistent strategy adopted by large firms and suggest the presence of significant sunk costs associated with outsourcing. The results also show that market thickness reduces search costs and enhances the establishment of outsourcing relationships. Ce mémoire présente une analyse empirique du comportement de sous‐traitance par les industries manufacturières françaises. On met l’accent sur les effets de l’épaisseur du marché, des coûts irrécupérables, et de la productivité des entreprises sur la décision de sous‐traiter. On calibre un modèle probit dynamique où la décision de sous‐traiter est liée au comportement de sous‐traitance dans le passé. Les résultats montrent que la sous‐traitance est une stratégie persistante adoptée par les grandes entreprises, et suggèrent que la présence de coûts irrécupérables importants est associée à la décision de sous‐traiter. Les résultats montrent aussi que la densité du marché réduit les coûts de recherche, et renforce le développement de relations de sous‐traitance.

Suggested Citation

  • Liza Jabbour, 2013. "Market thickness, sunk costs, productivity, and the outsourcing decision: an empirical analysis of manufacturing firms in France," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 103-134, February.
    • Handle: RePEc:wly:canjec:v:46:y:2013:i:1:p:103-134
    DOI: 10.1111/caje.12007
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