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Asymmetric spiders: Supplier heterogeneity and the organization of firms

Author

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  • Verena Nowak
  • Christian Schwarz
  • Jens Suedekum

Abstract

We consider a property rights model of a firm with two heterogeneous suppliers and analyze which sourcing mode (outsourcing or vertical integration) is chosen for which of the asymmetric inputs. If components are close substitutes, the firm tends to outsource the technologically more important input while keeping the less important one inside its boundaries. This pattern can be reversed, however, if the two inputs are strongly complementary. The firm also tends to outsource low-cost inputs and components with low sophistication. These theoretical predictions are consistent with numerous case studies and recent empirical evidence on the internal organization of firms.

Suggested Citation

  • Verena Nowak & Christian Schwarz & Jens Suedekum, 2016. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 663-684, May.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:2:p:663-684
    DOI: 10.1111/caje.12209
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    Cited by:

    1. Berlingieri, Giuseppe & Pisch, Frank & Steinwender, Claudia, 2018. "Organizing global supply chains: input costs shares and vertical integration," LSE Research Online Documents on Economics 91706, London School of Economics and Political Science, LSE Library.
    2. Greil, Stefan & Schwarz, Christian & Stein, Stefan, "undated". "Fairness and the Arm’s Length Principle in a Digital Economy [Fairness und der Fremdvergleichsgrundsatz in der digitalen Ökonomie]," Duesseldorf Working Papers in Applied Management and Economics 42, Duesseldorf University of Applied Sciences.
    3. Giuseppe Berlingieri & Frank Pisch & Claudia Steinwender, 2021. "Organizing Global Supply Chains: Input-Output Linkages and Vertical Integration," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1816-1852.
    4. Nowak, Verena, 2014. "Organizational Decisions in Multistage Production Processes," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100613, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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