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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Economising, Strategising and the Vertical Boundaries of the firm

Dermot Leahy / Catia Montagna
  • Corresponding author
  • Department of Economics, University of Aberdeen Business School, Edward Wright Building, Dunbar Street, Old Aberdeen, Aberdeen AB24 3QY, United Kingdom of Great Britain and Northern Ireland
  • Scottish Institute for Research in Economics, The University of Edinburgh, Room G5, 30 Buccleuch Place, Edinburgh EH8 9JT, UK
  • Globalisation and Economic Policy Centre, University of Nottingham, Nottingham NG7 2RD, UK
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Published Online: 2016-06-17 | DOI: https://doi.org/10.1515/bejte-2015-0085


We bridge the organisational economics and industrial economics literatures on the vertical boundaries of the firm by contextualising the transaction cost approach to the make-or-buy decision within an oligopolistic market structure. Firms invest in the quality of the intermediate resulting in the endogenous determination of the price of the intermediate and marginal production cost of the final good. We highlight new strategic incentives to outsource and/or vertically integrate and show how these incentives can result in asymmetric-mode-of-operations, investment and costs. We apply our model to a number of different international trading setups.

Keywords: oligopoly; outsourcing; vertical integration; trade liberalisation

JEL Classification: L13; L14; F12


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About the article

Published Online: 2016-06-17

Published in Print: 2017-01-01

Citation Information: The B.E. Journal of Theoretical Economics, Volume 17, Issue 1, 20150085, ISSN (Online) 1935-1704, ISSN (Print) 2194-6124, DOI: https://doi.org/10.1515/bejte-2015-0085.

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