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A bargaining perspective on strategic outsourcing and supply competition

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  • Catherine C. De Fontenay
  • Joshua S. Gans

Abstract

This article considers the outsourcing choice of a downstream firm with its own upstream production resources or assets. The novelty of the approach is to consider the outsourced function as involving resources consistent with the resource‐based view of the firm. From a bargaining perspective, we characterize a downstream firm's decision whether to outsource to an independent or to an established upstream firm. In so doing, the downstream firm faces a trade‐off between lower input costs afforded by independent competition, and higher resource value associated with those who can consolidate upstream capabilities. We show that this trade‐off is resolved in favor of outsourcing to an established firm. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Catherine C. De Fontenay & Joshua S. Gans, 2008. "A bargaining perspective on strategic outsourcing and supply competition," Strategic Management Journal, Wiley Blackwell, vol. 29(8), pages 819-839, August.
    • Handle: RePEc:bla:stratm:v:29:y:2008:i:8:p:819-839
    DOI: 10.1002/smj.697
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    Cited by:

    1. He Huang & Minhui Hu & Robert J. Kauffman & Hongyan Xu, 2021. "The Power of Renegotiation and Monitoring in Software Outsourcing: Substitutes or Complements?," Information Systems Research, INFORMS, vol. 32(4), pages 1236-1261, December.
    2. Beladi, Hamid & Mukherjee, Arijit, 2012. "Market structure and strategic bi-sourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 210-219.
    3. Yunchuan Liu & Rajeev K. Tyagi, 2011. "The Benefits of Competitive Upward Channel Decentralization," Management Science, INFORMS, vol. 57(4), pages 741-751, April.
    4. Zhixi Wan & Brian Wu, 2017. "When Suppliers Climb the Value Chain: A Theory of Value Distribution in Vertical Relationships," Management Science, INFORMS, vol. 63(2), pages 477-496, February.
    5. Stenbacka, Rune & Tombak, Mihkel, 2012. "Make and buy: Balancing bargaining power," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 391-402.
    6. Glenn MacDonald & Michael Ryall, 2018. "Do new entrants sustain, destroy, or create guaranteed profitability?," Strategic Management Journal, Wiley Blackwell, vol. 39(6), pages 1630-1649, June.

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