We analyze the outsourcing decision of a firm for a key input of a final good production to an independent input supplier even though the firm has an option of producing that key input in-house at a lower cost with a better technology. We find that for smaller technology gap with the independent...

We construct a model to show that outsourcing of a crucial input can occur even though it can be produced in-house at a lower cost. There are two firms producing differentiated goods and competing in prices, and only one of them possesses input production technology which is superior to that of...

This paper seeks to show that even though a product market competitor holds the least cost input production technology, it may outsource its input production to an independent input producer and buy inputs from the firm at a higher price instead of producing inputs in-house for itself....