Mutual Outsourcing Between Downstream Firms on Endogenous Competition
Year: 2025
Type: article
Abstract: ABSTRACT In vertically related markets with exclusive channels, we demonstrate endogenous choice of competition mode under mutual outsourcing between downstream manufacturers. In contrast to previous results, the upstream supplier charges the downstream manufacturer an input price lower (higher) than the unit production cost under Bertrand (Cournot) competition. Thus, asymmetric competition can emerge as equilibrium with the possibility of achieving the highest social welfare when the level of product differentiation is moderate. Finally, when the degree of differentiation is low (high), Bertrand (Cournot) competition emerges as equilibrium, leading to Pareto efficiency (prisoner's dilemma) under fierce (mild) competition.
Source: Manchester School
DOI: 10.1111/manc.12518
Authors: Kangsik Choi, Ki‐Dong Lee
Institutions: Pusan National University, Keimyung University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4408728517