Validity of the Principle of Minimum Differentiation under Vertical Subcontracting

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Title:	Validity of the Principle of Minimum Differentiation under Vertical Subcontracting
Authors:	Liang, Wen-jung;Mai, Chao-cheng
Contributors:	淡江大學產業經濟學系
Keywords:	bargaining;competition (economics);numerical model;subcontracting
Date:	2006-05
Issue Date:	2013-03-12 10:57:18 (UTC+8)
Publisher:	Amsterdam: Elsevier BV * North-Holland
Abstract:	This paper develops a variant of Hotelling's [Hotelling, H., 1929. Stability in competition. Economic Journal 39, 41–57] model involving subcontracting production to explore the validity of the Principle of Minimum Differentiation. It shows that the competition effect, the subcontracting effect, and the bargaining power effect jointly determine the equilibrium locations. It also demonstrates that if the ratio of the transport rates between the subcontracted input and the final product is sufficiently large, the Principle of Minimum Differentiation arises, but the Principle of Maximum Differentiation occurs if the condition is reversed. Furthermore, this paper finds that when the consignor takes the whole subcontracting surplus, the subcontractor will choose vertical foreclosure if this ratio is sufficiently large.
Relation:	Regional Science and Urban Economics 36(3), pp.373-384
DOI:	10.1016/j.regsciurbeco.2005.11.004
Appears in Collections:	[Graduate Institute & Department of Industrial Economics] Journal Article

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