Outsourcing with Quality Competition: Insights from a Three Stage Game Theoretic Model

27 Pages Posted: 25 Apr 2008

See all articles by Sang Hoo Bae

Sang Hoo Bae

Clark University - Department of Economics

Chung Sik Yoo

Yonsei University

Joseph Sarkis

Worcester Polytechnic Institute - Foisie Business School

Date Written: April 2008

Abstract

Outsourcing decisions by organizations have strategic and operational implications. Strategically, understanding the market and competition is necessary to make effective outsourcing decisions. In this paper we recognize this concern and model the situation where an organization with quality and cost pressures and operational strategies may arrive at different outsourcing solutions based on competitor quality strategy traits. We develop a three-stage game-theoretic oligopolistic model based on differentiated product strategy and integrating quality expectations of the market. The model is solved for equilibrium points on price, outsourcing activity, and investments in quality. The results show that these decision factors are sensitive to market expectations and quality performance of competitors. Performance measures based on profitability and market share results are also presented within this model. Observations and insights are also presented.

Keywords: Outsourcing, Quality, Operations Strategy, Price, Game Theory

JEL Classification: C7, C71, D21, D43, D58, L11, M11, R32

Suggested Citation

Bae, Sang Hoo and Yoo, Chung Sik and Sarkis, Joseph, Outsourcing with Quality Competition: Insights from a Three Stage Game Theoretic Model (April 2008). Available at SSRN: https://ssrn.com/abstract=1124950 or http://dx.doi.org/10.2139/ssrn.1124950

Sang Hoo Bae

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States

Chung Sik Yoo

Yonsei University ( email )

College of Government and Business
Wonju
Korea, Republic of (South Korea)

Joseph Sarkis (Contact Author)

Worcester Polytechnic Institute - Foisie Business School ( email )

100 Institute Rd.
Worcester, MA Massachusetts 01609
United States
5088314831 (Phone)
5088314831 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
200
Abstract Views
1,681
rank
220,755
PlumX Metrics