Outsourcing and Competition Policy

Posted: 5 Apr 2011 Last revised: 21 Oct 2011

See all articles by Cosimo Beverelli

Cosimo Beverelli

World Trade Organization (WTO); European University Institute

Kornel Mahlstein

Graduate Institute of International and Development Studies (IHEID)

Date Written: June 2011


We analyze optimal competition policy by a Competition Agency (CA) in a model with two countries, North and South, were a final good is produced by Northern oligopolistic firms using an input that can either be produced within the firm (vertical integration) or outsourced to Southern oligopolistic producers with lower labor costs (outsourcing). In the case where the final good is only consumed in the North, a CA in the South would optimally appropriate outsourcing rents through restrictions on the degree of competition among domestic firms. If the final good is consumed in both countries, we find that optimal competition policy in the South is marginally affected by the share of Southern consumption, leaving relatively important incentives to engage in rent-shifting. For a high enough share of Southern consumption, however, the interaction between the Northern and Southern CA is shown to be of the Prisoner’s Dilemma type, whereby the Nash equilibrium is Pareto-suboptimal and mutual cooperation on competition policy is globally desirable.

Keywords: competition authority, rents, outsourcing

JEL Classification: F15, F23, L13, L40

Suggested Citation

Beverelli, Cosimo and Mahlstein, Kornel, Outsourcing and Competition Policy (June 2011). Journal of Industry, Competition and Trade 11(2): 131-147. Available at SSRN: https://ssrn.com/abstract=1802577

Cosimo Beverelli (Contact Author)

World Trade Organization (WTO) ( email )

Rue de Lausanne 154
Geneva, 1202

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014

Kornel Mahlstein

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211

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