Date: 2011
Type: Article
Outsourcing and competition policy
Journal of industry, competition and trade, 2011, Vol. 11, No. 2, pp. 131-147
BEVERELLI, Cosimo, MAHLSTEIN, Kornel, Outsourcing and competition policy, Journal of industry, competition and trade, 2011, Vol. 11, No. 2, pp. 131-147
- https://hdl.handle.net/1814/59244
Retrieved from Cadmus, EUI Research Repository
We analyze optimal competition policy by a Competition Agency (CA) in a model with two countries, North and South, were a final good is produced by Northern oligopolistic firms using an input that can either be produced within the firm (vertical integration) or outsourced to Southern oligopolistic producers with lower labor costs (outsourcing). In the case where the final good is only consumed in the North, a CA in the South would optimally appropriate outsourcing rents through restrictions on the degree of competition among domestic firms. If the final good is consumed in both countries, we find that optimal competition policy in the South is marginally affected by the share of Southern consumption, leaving relatively important incentives to engage in rent-shifting. For a high enough share of Southern consumption, however, the interaction between the Northern and Southern CA is shown to be of the Prisoner’s Dilemma type, whereby the Nash equilibrium is Pareto-suboptimal and mutual cooperation on competition policy is globally desirable.
Additional information:
First Online: 02 March 2010
Cadmus permanent link: https://hdl.handle.net/1814/59244
Full-text via DOI: 10.1007/s10842-010-0068-z
ISSN: 1566-1679; 1573-7012
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