Strategic Outsourcing for Competing OEMs that Face Cost Reduction Opportunities

  title={Strategic Outsourcing for Competing OEMs that Face Cost Reduction Opportunities},
  author={Stephen Gilbert and Yusen Xia and Gang Yu},
This paper explores production and outsourcing decisions for two original equipment manufacturers (OEM) who produce partially substitutable products and have opportunities to invest in reducing the manufacturing cost. In such an environment, competition drives both OEMs to set lower prices and invest more than would occur in the first-best solution, particularly when product substitutability is high. However, outsourcing provides a mechanism by which the two OEMs can credibly signal that they… CONTINUE READING
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