TITLE:
Nash Bargaining and Outsourcing in a Duopoly Market
AUTHORS:
Hideki Sato
KEYWORDS:
Duopoly Market, Cournot Competition, Outsourcing, In-House Production, Nash Bargaining, Subgame Perfect Equilibrium
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.3,
June
7,
2023
ABSTRACT: In this paper, we clarify the impact of Nash bargaining between
manufacturers and an input supplier on manufacturer outsourcing decisions. At a
subgame perfect equilibrium, the manufacturers select in-house production, and no outsourcing equilibrium exists. In the
intra-industry outsourcing literature, Sinha (2016) shows that manufacturers select in-house
production in response to the existence of fixed costs. In contrast, we
clarified that Nash bargaining leads to in-house production equilibrium even
when the cost function is not associated with fixed costs.