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Sourcing strategies of a multi-input-multi-product firm

Author

Listed:
  • Kopel, Michael
  • Löffler, Clemens
  • Pfeiffer, Thomas

Abstract

Firms commonly manufacture multiple products using multiple complementary inputs. The multi-input-multi-product environment generates interactions among products yielding the following results for the firm's sourcing strategies: (i) A multi-input-multi-product firm might optimally deviate from an isolated least-cost comparison, i.e. might produce in-house even if marginal in-house production cost exceeds the per-unit input price (and vice versa). Such a deviation can be optimal even if the input supplier can engage in price discrimination and can condition its input prices on the individual products that the firm manufactures. (ii) An outsourcing wave can arise in that concurrently outsourcing all inputs can be profitable for the firm even though outsourcing each input individually is unprofitable. (iii) More competition on the supplier market can decrease the multi-input-multi-product firm's profit.

Suggested Citation

  • Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2016. "Sourcing strategies of a multi-input-multi-product firm," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 30-45.
    • Handle: RePEc:eee:jeborg:v:127:y:2016:i:c:p:30-45
    DOI: 10.1016/j.jebo.2016.04.001
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    References listed on IDEAS

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    2. Lin, Yen-Ju, 2022. "Consumer welfare, licensing, and exclusive dealing with vertically- and horizontally-differentiated products," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 147-158.
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    4. Colombo, Stefano & Scrimitore, Marcella, 2018. "Managerial delegation under capacity commitment: A tale of two sources," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 149-161.
    5. Sim, Jeongeun & Kim, Bosung, 2021. "Sourcing decision in the presence of a complementary component," Omega, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    Make-or-buy; Multi-product firm; Outsourcing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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