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Single sourcing versus multiple sourcing

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  • Roman Inderst

Abstract

We show that in contrast to results in the extant literature, single sourcing may not be the optimal strategy of a buyer facing suppliers with strictly convex costs. As we argue, previous findings relied crucially on the joint assumption that, first, there is only a single buyer and that, second, procurement takes place in an auction organized by the buyer. Relaxing these restrictions, we obtain a richer set of results. In particular, we show that even in the original setting, where suppliers bid, committing to single sourcing is only optimal if the respective buyer controls a sufficiently large fraction of the whole procurement market. Copyright (c)2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 1 ()
Pages: 199-213

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Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:199-213

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Cited by:
  1. James J. Anton & Gary Biglaiser & Nikolaos Vettas, 2012. "Dynamic Price Competition with Capacity Constraints and a Strategic Buyer," Levine's Working Paper Archive 786969000000000614, David K. Levine.
  2. Alcalde, José & Dahm, Matthias, 2011. "Competition for Procurement Shares," Working Papers 2072/169682, Universitat Rovira i Virgili, Department of Economics.
  3. Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, Elsevier, vol. 96(1), pages 188-197.
  4. Chris Doyle & Martijn Han, 2014. "Cartelization Through Buyer Groups," Review of Industrial Organization, Springer, Springer, vol. 44(3), pages 255-275, May.
  5. Anton, James J. & Brusco, Sandro & Lopomo, Giuseppe, 2010. "Split-award procurement auctions with uncertain scale economies: Theory and data," Games and Economic Behavior, Elsevier, Elsevier, vol. 69(1), pages 24-41, May.
  6. Stenbacka, Rune & Tombak, Mihkel, 2012. "Make and buy: Balancing bargaining power," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 391-402.

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