Offshoring under Oligopoly

This paper uncovers a novel pattern of offshoring and market structure in a high-tech industry, and proposes a simple oligopoly model to explain it. Specifically, the hard disk drive industry (1976–98) witnessed massive waves of entry, exit, and the relocation of manufacturing plants to low-cost countries, in which shakeouts occurred predominantly among home firms and almost all survivors were offshore firms. I build and estimate a dynamic offshoring game with entry/exit to explain these facts, and then investigate the relationship between offshoring and market structure as well as the impacts of hypothetical government interventions.