We take a game theory approach to study the make-or-buy decisions of firms in audmixed duopoly. We assume that a managerial firm and a profit-oriented firm compete in audduopoly market for a final good, and they can choose whether making an intermediate input orudbuying it from a monopolistic upstream firm. We find that different equilibria may arise,uddepending on parameter constellations. In particular, if the technology used for the productionudof the intermediate input is too costly, then the internal organization of firms at equilibrium isudmixed, creating a conflict with social preferences that would always privilege verticaludintegration to outsourcing.
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