Outsourcing with Quality Competition: Insights from a Three
Stage Game Theoretic Model
Bae, S-H, Yoo, C-S, and Sarkis J.
International Journal of Production Research,
Vol. 48, No. 2, pp.
327-342, 2010.
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.
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