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Review of Industrial Organization

, Volume 25, Issue 1, pp 45–69 | Cite as

On the Relationship between International Outsourcing and Price–Cost Margins in European Industries

  • Hartmut Egger
  • Peter Egger
Article

Abstract

This paper sets up a model, where multinationals compete in quantities and domestic firms form a competitive fringe. Within this framework, we analyse the relationship between market concentration, international outsourcing and the industry price-cost margin. The empirical results of a panel of 66 industries and the EU12 countries in the 1990s strongly confirm our theoretical hypotheses. Market concentration and international outsourcing are positively related to industry price–cost margins. In a thought experiment, we show that industry price–cost margins would have decreased by 0.4 percentage points more in the 1990s, if international outsourcing had not changed since 1990. In addition, international outsourcing accounts for a convergence in margins across industries in the last decade.

international outsourcing panel econometrics price–cost margin 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Hartmut Egger
    • 1
  • Peter Egger
    • 2
  1. 1.Socioeconomic InstituteUniversity of Zurich8032 ZurichSwitzerland. Tel.:
  2. 2.University of Innsbruck and University of Notre DameSwitzerland

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