This paper considers a Hotelling duopoly with two firms A and B in the final good market. Both A and $B$ can produce the required intermediate good, firm B having a lower cost due to a superior technology. We compare two contracts: outsourcing (A orders the intermediate good from B) and...

We consider a Hotelling duopoly with two firms <InlineEquation ID="IEq1"> <EquationSource Format="TEX">$$A$$</EquationSource> </InlineEquation> and <InlineEquation ID="IEq2"> <EquationSource Format="TEX">$$B$$</EquationSource> </InlineEquation> in the final good market. Both can produce the required intermediate good, firm <InlineEquation ID="IEq3"> <EquationSource Format="TEX">$$B$$</EquationSource> </InlineEquation> having a lower cost due to a superior technology. We compare two contracts: outsourcing (<InlineEquation ID="IEq4"> <EquationSource Format="TEX">$$A$$</EquationSource> </InlineEquation> orders the intermediate good from <InlineEquation ID="IEq5"> <EquationSource Format="TEX">$$B$$</EquationSource> </InlineEquation>)...</equationsource></inlineequation></equationsource></inlineequation></equationsource></inlineequation></equationsource></inlineequation></equationsource></inlineequation>