The Make-or-Buy Decision in the Presence of a Rival: Strategic Outsourcing to a Common Supplier
AbstractFirms routinely decide whether to make essential inputs themselves or buy the inputs from independent suppliers. Conventional wisdom suggests that a firm will not buy an input for a price above its in-house cost of production. We show that this is not necessarily the case when a monopolistic input supplier also serves the firm's retail rival. In this case, the decision to buy the input (and thus become one of the supplier's customers) can limit the incentive the supplier would otherwise have to provide the input on particularly favorable terms to the retail rival. Thus, a retail competitor may pay a premium to outsource production to a common supplier in order to raise its rivals' costs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 54 (2008)
Issue (Month): 10 (October)
make-or-buy; strategic outsourcing; supply chains;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Suedekum, Jens & Nowak, Verena & Schwarz, Christian, 2012.
"On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input?,"
IZA Discussion Papers
6564, Institute for the Study of Labor (IZA).
- Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo Group Munich.
- Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006.
"Outsourcing Induced by Strategic Competition,"
321307000000000674, UCLA Department of Economics.
- Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Cowles Foundation Discussion Papers 1589, Cowles Foundation for Research in Economics, Yale University.
- Chen, Yutian & Dubey, Pradeep & Sen, Debapriya, 2009. "Outsourcing induced by strategic competition," MPRA Paper 14899, University Library of Munich, Germany.
- Kenneth Fjell & Oystein Foros & Hans Jarle Kind, 2013. "On the Choice of Royalty Rule to Cover Fixed Costs in Input Joint Ventures," CESifo Working Paper Series 4332, CESifo Group Munich.
- Shy, Oz & Stenbacka, Rune, 2012.
"Efficient organization of production: Nested versus horizontal outsourcing,"
Elsevier, vol. 116(3), pages 593-596.
- Oz Shy & Rune Stenbacka, 2009. "Efficient organization of production: nested versus horizontal outsourcing," Working Papers 09-9, Federal Reserve Bank of Boston.
- Matsushima, Noriaki & Mizuno, Tomomichi, 2013.
"Vertical separation as a defense against strong suppliers,"
European Journal of Operational Research,
Elsevier, vol. 228(1), pages 208-216.
- Noriaki Matsushima & Tomomichi Mizuno, 2009. "Vertical Separation as a Defense against Strong Suppliers," ISER Discussion Paper 0755, Institute of Social and Economic Research, Osaka University.
- Yutian Chen, 2011. "Strategic sourcing for entry deterrence and tacit collusion," Journal of Economics, Springer, vol. 102(2), pages 137-156, March.
- Tarun Kabiraj & Uday Bhanu Sinha, 2014. "Strategic Outsourcing with Technology Transfer under Cournot Competition," Economics Bulletin, AccessEcon, vol. 34(2), pages 1133-1140.
- Chen, Yutian & Sen, Debapriya, 2010. "Strategic Outsourcing under Economies of Scale," MPRA Paper 20763, University Library of Munich, Germany.
- Yutian Chen, 2010. "Strategic Outsourcing between Rivals," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 301-311, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.