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Dual Sourcing and Resilient Supply Chains: The Case of Essential Ressources

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  • Gehrig, Thomas
  • Stenbacka, Rune

Abstract

We characterize strategic technology investments in essential resources. With a monopoly supplier dual sourcing is a strategy to reduce switching costs in the long-run. It serves as an insurance mechanism against future opportunism by providing access to competitive global markets. Investments in dual sourcing are required to limit abuse of market power by the active source provider, even though the option of dual sourcing may not be exercised in equilibrium. Our analysis has implications for the European natural gas market. LNG-terminals may serve a strategic purpose of limiting ex-post opportunism even when delivering gas by pipeline is more efficient.

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  • Gehrig, Thomas & Stenbacka, Rune, 2022. "Dual Sourcing and Resilient Supply Chains: The Case of Essential Ressources," CEPR Discussion Papers 17729, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17729
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    More about this item

    Keywords

    dual sourcing; Resilience; Switching costs; predatory investments; supply security;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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