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Market structure and strategic bi-sourcing


  • Beladi, Hamid
  • Mukherjee, Arijit


We provide a new rationale for bi-sourcing, which refers to the situation where a final goods producer buys an input from an outside supplier and also produces it in-house. We also show the effects of the product market competition and the implications of different and common outside input suppliers on the profits of the final goods producers. In-house input production reduces the price charged by the outside input supplier, and may make bi-sourcing as a profitable strategy. Under bi-sourcing, the final goods producers may be better off by outsourcing to a common input supplier than by outsourcing to different input suppliers. In the presence of bi-sourcing, the final goods producers may not have the incentive for cooperation in the product market. Our results show that even if the final goods producer's marginal cost of in-house input production is higher than the outside supplier's marginal cost of input production, bi-sourcing makes the consumers better off compared to complete outsourcing.

Suggested Citation

  • Beladi, Hamid & Mukherjee, Arijit, 2012. "Market structure and strategic bi-sourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 210-219.
  • Handle: RePEc:eee:jeborg:v:82:y:2012:i:1:p:210-219
    DOI: 10.1016/j.jebo.2012.01.004

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    5. 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.
    6. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2015. "On vertical relations and the timing of technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 120(C), pages 117-129.
    7. Dinah Cohen-Vernik & Oksana Loginova & Niladri B. Syam, 2016. "Sourcing Co-Created Products: Should your Suppliers Collaborate?," Working Papers 1618, Department of Economics, University of Missouri, revised 17 Aug 2017.
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    11. Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2016. "Sourcing strategies of a multi-input-multi-product firm," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 30-45.

    More about this item


    Bi-sourcing; Competition; In-house input production;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production


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