IT Services Offshore Outsourcing and Industrial Competition Policy

The offshore outsourcing of IT services is more and more important in today's IT industry. Applying a simple model with two countries, the "North" and the "South", we analyze the optimal industrial competition policy which is set by a Competition Agency. During the interactions between the "North" and the "South", a final IT product is provided by the northern oligopolistic firms, who utilize an input processed by the southern oligopolistic IT services providers with lower costs. In the paper, we focus on relations between IT services outsourcing and industrial competition policy. The Competition Agency plays an important role throughout the outsourcing process. The result shows that, by controlling the degree of competition, the IT services outsourcing rents can be appropriated perfectly.