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Multi-sourcing as an entry deterrence strategy

  • Mukherjee, Arijit
  • Tsai, Yingyi

This paper studies the rationale for multiple sourcing. In a simple model of outsourcing that embodies technology transfer and the threat of competition from the supplier(s) due to imitation, we show that multiple sourcing helps to deter entry by the suppliers into the final goods market and enhances profitability of the outsourcing firm. Our explanation for multiple outsourcing differs from the standard arguments, which either reduce the double marginalization problem or eliminate supply bottlenecks.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 25 (2013)
Issue (Month): C ()
Pages: 108-112

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Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:108-112
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  1. Alan V. Deardorff, 2004. "A Trade Theorist’s Take on Skilled-Labor Outsourcing," Working Papers 519, Research Seminar in International Economics, University of Michigan.
  2. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
  3. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  4. Matsuoka, Yuji & Fukushima, Marcelo, 2010. "Time zones, shift working and international outsourcing," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 769-778, October.
  5. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
  6. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  7. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  8. Daniel Horgos, 2007. "Labor Market Effects of International Outsourcing: How Measurement Matters," SOEPpapers on Multidisciplinary Panel Data Research 58, DIW Berlin, The German Socio-Economic Panel (SOEP).
  9. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
  10. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, vol. 65(2), pages 389-415, August.
  11. Andrabi, Tahir & Ghatak, Maitreesh & Khwaja, Asim Ijaz, 2006. "Subcontractors for tractors: Theory and evidence on flexible specialization, supplier selection, and contracting," Journal of Development Economics, Elsevier, vol. 79(2), pages 273-302, April.
  12. Jones, Ronald W., 2005. "Immigration vs. outsourcing: Effects on labor markets," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 105-114.
  13. Tomiura, Eiichi, 2009. "Foreign versus domestic outsourcing: Firm-level evidence on the role of technology," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 219-226, March.
  14. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
  15. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
  16. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
  17. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
  18. Sugata Marjit & Arijit Mukherjee, 2008. "International Outsourcing and R&D: Long-Run Implications for Consumers," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 1010-1022, November.
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