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Coordinating investment, production, and subcontracting. (English) Zbl 1231.91287
Summary: We value the option of subcontracting to improve financial performance and system coordination by analyzing a competitive stochastic investment game with recourse. The manufacturer and subcontractor decide separately on their capacity investment levels. Then demand uncertainty is resolved and both parties have the option to subcontract when deciding on their production and sales. We analyze and present outsourcing conditions for three contract types: (1) price-only contractswhere an ex-ante transfer price is set for each unit supplied by the subcontractor; (2) incomplete contracts, where both parties negotiate over the subcontracting transfer; and (3) state-dependentprice-only and incomplete contracts for which we show an equivalence result.
Reviewer: Reviewer (Berlin)

91B40 Labor market, contracts (MSC2010)
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