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U.S. defense policy encourages the use of dual sourcing to reduce government procurement costs, but recent theoretical work raises doubts about the benefits of this policy. I study the determinants of dual sourcing and its effects on government procurement costs using a panel dataset of tactical missiles. I find dual sourcing is not driven by failures to reduce costs; instead, it is used more often after incumbent suppliers demonstrate quality control problems, and in settings where tacit collusion is likely to be difficult. After correcting for selection bias, dual sourcing is found to reduce government procurement costs significantly. Copyright Blackwell Publishing Ltd. 2006.

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  • Thomas P. Lyon, 2006. "DOES DUAL SOURCING LOWER PROCUREMENT COSTS? -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(2), pages 223-252, June.
  • Handle: RePEc:bla:jindec:v:54:y:2006:i:2:p:223-252

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    References listed on IDEAS

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    2. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
    3. Rochet, Jean-Charles & Tirole, Jean, 1999. "Cooperation Among Competitors: The Economics of Credit Card Associations," CEPR Discussion Papers 2101, C.E.P.R. Discussion Papers.
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    5. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
    6. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
    7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    8. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
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    Cited by:

    1. Gong, Jiong & Li, Jianpei & McAfee, R. Preston, 2012. "Split-award contracts with investment," Journal of Public Economics, Elsevier, vol. 96(1), pages 188-197.
    2. repec:bla:obuest:v:79:y:2017:i:6:p:969-996 is not listed on IDEAS
    3. Emanuel Ornelas & John L. Turner, 2012. "Protection and International Sourcing," Economic Journal, Royal Economic Society, vol. 122(559), pages 26-63, March.
    4. Wipprich, Mark, 2007. "Preisbindung als Kooperationsinstrument in Wertschöpfungsnetzwerken," Arbeitspapiere 60, University of Münster, Institute for Cooperatives.
    5. James J. Anton & Sandro Brusco & Giuseppe Lopomo, 2007. "Coordination in Split-Award Auctions with Uncertain Scale Economies: Theory and Data," Department of Economics Working Papers 07-02, Stony Brook University, Department of Economics.
    6. Anton, James J. & Brusco, Sandro & Lopomo, Giuseppe, 2010. "Split-award procurement auctions with uncertain scale economies: Theory and data," Games and Economic Behavior, Elsevier, vol. 69(1), pages 24-41, May.

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