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FIRMS , CONTRACTS , AND TRADE STRUCTURE
- Publisher
- Springer Journals
- Copyright
- Copyright © 2017 by Springer Science+Business Media, LLC
- Subject
- Economics; Industrial Organization; Political Economy/Economic Policy; R & D/Technology Policy; European Integration; Microeconomics; International Economics
- ISSN
- 1566-1679
- eISSN
- 1573-7012
- DOI
- 10.1007/s10842-017-0259-y
- Publisher site
- See Article on Publisher Site
Abstract
Offshore outsourcing has grown as a form of industrial organisation to increase profitability of firms. However, offshoring may be less lucrative than envisaged, due to the presence of hidden costs. We study the strategic interaction amongst onshore Cournot firms in the decision to offshore when they receive signals about offshore hidden costs. The analysis helps suggest policy implications for countries which are potential offshoring locations. We find the precision of signals and the range of possible hidden costs to be crucial in determining offshoring destinations. Updating of information about hidden costs leads to different equilibria including herding in offshoring.
Journal
"Journal of Industry, Competition and Trade" – Springer Journals
Published: Sep 21, 2017