Production outsourcing for limited-edition luxury goods with consideration of consumers’ origin preferences

Abstract

Origin decisions related to the manufacture of limited-edition luxury goods can be critical for luxury brands, because consumers often have strong origin preferences. We hence study two competing luxury brands’ production outsourcing decisions by incorporating tradeoffs among competition intensity, origin preferences, and quantity limits. Interestingly, we find that when luxury brands have the option, they tend to outsource production to an overseas contract manufacturer even when origin preferences for overseas goods are not strong and the downstream competition is mild. Correspondingly, if a brand’s rival has no outsourcing options, its profit might be hurt when origin preferences for overseas goods and competition intensity are both moderate.