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Asymmetric spiders: Supplier heterogeneity and the organization of firms

Author

Listed:
  • Verena Nowak
  • Christian Schwarz
  • Jens Suedekum

Abstract

We consider a property rights model of a firm with two heterogeneous suppliers and analyze which sourcing mode (outsourcing or vertical integration) is chosen for which of the asymmetric inputs. If components are close substitutes, the firm tends to outsource the technologically more important input while keeping the less important one inside its boundaries. This pattern can be reversed, however, if the two inputs are strongly complementary. The firm also tends to outsource low-cost inputs and components with low sophistication. These theoretical predictions are consistent with numerous case studies and recent empirical evidence on the internal organization of firms.

Suggested Citation

  • Verena Nowak & Christian Schwarz & Jens Suedekum, 2016. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 663-684, May.
  • Handle: RePEc:cje:issued:v:49:y:2016:i:2:p:663-684
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Greil, Stefan & Schwarz, Christian & Stein, Stefan, "undated". "Fairness and the Arm’s Length Principle in a Digital Economy
      [Fairness und der Fremdvergleichsgrundsatz in der digitalen Ökonomie]
      ," Duesseldorf Working Papers in Applied Management and Economics 42, Duesseldorf University of Applied Sciences.
    2. Nowak, Verena, 2014. "Organizational decisions in multistage production processes," DICE Discussion Papers 169, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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