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Complementary Inputs, Mutual Outsourcing, and Supplier Encroachment

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  • Chrysovalantou Milliou
  • Konstantinos Serfes

Abstract

Final goods are typically produced using multiple complementary inputs. We examine the incentives and implications of supplier encroachment incorporating this fact and allowing for the possibility of mutual outsourcing between the encroached supplier and the incumbent. We show that mutual outsourcing can occur when both firms are present in the final good market. We also show that, unlike the single input case, the supplier refrains from encroaching when mutual outsourcing results in high wholesale prices and that encroachment can benefit the incumbent by generating input sales. Finally, we show that nonlinear contracts play a significant role for encroachment.

Suggested Citation

  • Chrysovalantou Milliou & Konstantinos Serfes, 2025. "Complementary Inputs, Mutual Outsourcing, and Supplier Encroachment," Journal of Industrial Economics, Wiley Blackwell, vol. 73(3), pages 458-479, September.
    • Handle: RePEc:bla:jindec:v:73:y:2025:i:3:p:458-479
    DOI: 10.1111/joie.12419
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