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Make and buy: Balancing bargaining power

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  • Stenbacka, Rune
  • Tombak, Mihkel

Abstract

We analyze the optimal procurement of labor, which can be supplied either internally, based on wage negotiations, or acquired at terms negotiated with an external subcontractor. The novel feature of our model is that the subcontractor's bargaining power is a function of the proportion of output outsourced. We demonstrate analytically how multiple sourcing emerges as an organizational mechanism to balance cost advantages associated with outsourcing against a subcontractor's increased bargaining power. We find that the optimal proportion of outsourcing is lower with sequential negotiations than with simultaneous negotiations, if the supplier to first negotiate can foreclose subsequent negotiations.

Suggested Citation

  • Stenbacka, Rune & Tombak, Mihkel, 2012. "Make and buy: Balancing bargaining power," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 391-402.
  • Handle: RePEc:eee:jeborg:v:81:y:2012:i:2:p:391-402 DOI: 10.1016/j.jebo.2011.12.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Chrysovalantou Milliou & Joel Sandonis, 2016. "Vertical Foreign Direct Investment: Make, Sell and (Not) Buy," CESifo Working Paper Series 6190, CESifo Group Munich.
    2. Noriaki Matsushima & Ryusuke Shinohara, 2011. "What factors determine the number of trading partners?," ISER Discussion Paper 0808, Institute of Social and Economic Research, Osaka University.
    3. Hiroshi Goto & Keiya Minamimura, 2014. "Fertility, Regional Demographics, and Economic Integration," Discussion Papers 1405, Graduate School of Economics, Kobe University.
    4. Noriaki Matsushima & Laixun Zhao, 2015. "Strategic dual sourcing as a driver for free revealing of innovation," ISER Discussion Paper 0936, Institute of Social and Economic Research, Osaka University.
    5. Justus Haucap & Torben Stühmeier, 2016. "Competition and antitrust in Internet markets," Chapters,in: Handbook on the Economics of the Internet, chapter 9, pages 183-210 Edward Elgar Publishing.
    6. Christian D. Mina & Katsushi S. Imai, 2017. "Estimation of Vulnerability to Poverty Using a Multilevel Longitudinal Model: Evidence from the Philippines," Journal of Development Studies, Taylor & Francis Journals, pages 2118-2144.
    7. Gregory E. Kersten & Tomasz Wachowicz & Margaret Kersten, 2016. "Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations," Group Decision and Negotiation, Springer, vol. 25(4), pages 693-722, July.
    8. repec:eee:jeborg:v:137:y:2017:i:c:p:90-104 is not listed on IDEAS
    9. Maria Alipranti & Chrysovalantou Miliou & Emmanuel Petrakis, 2014. "On Vertical Relations and Technology Adoption Timing," Working Papers 1502, University of Crete, Department of Economics.
    10. You, Jing & Imai, Katsushi S. & Gaiha, Raghav, 2016. "Declining Nutrient Intake in a Growing China: Does Household Heterogeneity Matter?," World Development, Elsevier, pages 171-191.
    11. Matsushima, Noriaki & Shinohara, Ryusuke, 2014. "What factors determine the number of trading partners?," Journal of Economic Behavior & Organization, Elsevier, pages 428-441.
    12. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2015. "On vertical relations and the timing of technology adoption," Journal of Economic Behavior & Organization, Elsevier, pages 117-129.
    13. Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2016. "Sourcing strategies of a multi-input-multi-product firm," Journal of Economic Behavior & Organization, Elsevier, pages 30-45.
    14. Chongvilaivan, Aekapol & Hur, Jung & Riyanto, Yohanes E., 2013. "Labor union bargaining and firm organizational structure," Labour Economics, Elsevier, pages 116-124.
    15. Heese, H. Sebastian, 2015. "Single versus multiple sourcing and the evolution of bargaining positions," Omega, Elsevier, pages 125-133.

    More about this item

    Keywords

    Organizational design; Multiple sourcing; Bargaining power;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M55 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Contracting Devices
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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