Make vs buy in a monopoly with demand or cost uncertainty

Make vs Buy in a Monopoly with Demand or Cost Uncertainty

The issue of technical progress under uncertainty is nested into the debate on vertical integration vs outsourcing, to show that, in general, the former is preferable to the latter in terms of both expected profits and technological efficiency. It is then shown that there exist (i) an optimal two part tariff where the unit price set by the upstream firm is conditional upon its R&D effort, and (...

A Transaction Cost Approach to Make-or-Buy Decisions

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Make , Buy , or Cooperate ?

In 1937, Ronald Coase argued that firms will exist only in environments in which firms perform better than markets could. To create space for firms, Coase suggested that some environments might be plagued by “transaction costs” that cause markets to perform poorly. Coase’s paper was to become the cornerstone of the economic theory of the firm (i.e., the “make or buy” decision: which activities ...

Transaction Cost Approach to Component Make-or-Buy Decisions

Process RDin Monopoly under Demand Uncertainty

I investigate RDefforts for process innovation in a monopoly with uncertain demand. Two different models are proposed, where either (i) the reservation price is affected by an additive shock and the marginal production cost is increasing, or (ii) a multiplicative shock on the slope of demand combines with a flat marginal production cost. In either case, price-setting behaviour generates a large...