Outsourcing Under Incomplete Information

Published By: Centre for Development Economics (CDE) | Published Date: March, 01 , 2017

The Author considers outsourcing decision of a firm in a Cournot duopoly with incomplete information. There is incomplete information about the production technology of one firm. It is shown that outsourcing can occur as outcomes of a separating or pooling perfect Bayesian equilibrium, although it is not profitable under complete information. Thus, the paper shows that asymmetric information can itself be a reason for outsourcing. It further shows that under outsourcing equilibrium consumers gain, producers as a whole loose, but the overall welfare falls.

Author(s): Tarun Kabiraj, Uday Bhanu Sinha | Posted on: Nov 14, 2017 | Views() | Download (46)

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