Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43872
Authors: 
König, Jan
Year of Publication: 
2010
Series/Report no.: 
School of Business & Economics Discussion Paper: Economics 2010/33
Abstract: 
This paper shows the strategic aspects of international outsourcing in an oligopolistic market, if outsourcing is attractive because of fixed cost savings. We show that outsourcing decisions are strategic substitutes. Furthermore, we demonstrate that due to decreasing individual output, intensified competition increases the incentive to save fixed costs of integrated production and thus leads to more outsourcing. Additionally, we analyse how domestic costs and taxation affect the equilibrium level of outsourcing and employment. Here, we find that lower domestic costs decrease the proportion of outsourcing and therefore, increase employment. Concerning the impact of taxation, we find that a lower consumption tax on output decreases outsourcing. In case of a reversed outsourcing motivation, where outsourcing is associated with lower marginal costs but higher fixed costs than the domestic production, we show that the opposite effects concerning competition and taxation occur.
Subjects: 
outsourcing
cost structure
Cournot-competition
taxation
JEL: 
D20
L13
L22
L23
L24
ISBN: 
978-3-941240-45-2
Document Type: 
Working Paper

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