IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v25y2013icp108-112.html
   My bibliography  Save this article

Multi-sourcing as an entry deterrence strategy

Author

Listed:
  • Mukherjee, Arijit
  • Tsai, Yingyi

Abstract

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.

Suggested Citation

  • Mukherjee, Arijit & Tsai, Yingyi, 2013. "Multi-sourcing as an entry deterrence strategy," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 108-112.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:108-112
    DOI: 10.1016/j.iref.2012.04.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056012000317
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2012.04.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
    2. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
    3. 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.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Soumyananda Dinda & Arijit Mukherjee, 2011. "International Outsourcing, Tax, and Patent Protection," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(1), pages 139-154, February.
    6. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    7. Deardorff, Alan V., 2005. "A trade theorist's take on skilled-labor outsourcing," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 259-271.
    8. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
    9. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, vol. 65(2), pages 389-415, August.
    10. 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.
    11. Michael Hobday, 1995. "Innovation In East Asia," Books, Edward Elgar Publishing, number 226.
    12. Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 611-623, October.
    13. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    14. 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.
    15. 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.
    16. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
    17. Jones, Ronald W., 2005. "Immigration vs. outsourcing: Effects on labor markets," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 105-114.
    18. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
    19. 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.
    20. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 85-120.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tarun Kabiraj & Uday Bhanu Sinha, 2014. "Strategic Outsourcing with Technology Transfer under Cournot Competition," Economics Bulletin, AccessEcon, vol. 34(2), pages 1133-1140.
    2. Oksana Loginova & Niladri B. Syam, 2020. "Sourcing Co-Created Products: Should Your Suppliers Collaborate on Cost Reductions?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(2), pages 329-355, March.
    3. Hamid Beladi & Reza Oladi, 2014. "On Offshoring and Trade Deficit," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 517-523, August.
    4. 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 14 Aug 2018.
    5. Chaudhuri, Sarbajit, 2014. "Foreign capital, non-traded goods and welfare in a developing economy in the presence of externalities," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 249-262.
    6. Antoine Gervais, 2021. "Global sourcing under uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1103-1135, November.
    7. Yi-Fan Chen & Alireza Naghavi & Shin-Kun Peng, 2021. "Learning by supplying and competition threat," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 121-148, February.
    8. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    9. Kabiraj, Tarun & Sinha, Uday Bhanu, 2016. "Strategic outsourcing with technology transfer under price competition," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 281-290.
    10. Gervais, Antoine, 2018. "Uncertainty, risk aversion and international trade," Journal of International Economics, Elsevier, vol. 115(C), pages 145-158.
    11. Kamoto, Shinsuke, 2015. "Strategic capacity expansion under a potential entry threat," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 157-177.
    12. Mukherjee, Arijit & Sinha, Uday Bhanu, 2014. "Can cost asymmetry be a rationale for privatisation?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 497-503.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Justin Yifu Lin & Arijit Mukherjee & Yingyi Tsai, 2008. "Why do Firms Engage in Multi-sourcing?," Discussion Papers 08/43, University of Nottingham, GEP.
    2. Arijit Mukherjee & Yingyi Tsai, 2010. "International Outsourcing And Welfare Reduction: An Entry‐Deterrence Story," Manchester School, University of Manchester, vol. 78(6), pages 647-659, December.
    3. Cao, Jiyun & Mukherjee, Arijit & Sinha, Uday Bhanu, 2018. "Firm-asymmetry and strategic outsourcing," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 16-24.
    4. Tarun Kabiraj & Uday Bhanu Sinha, 2011. "Strategic Outsourcing with Technology Transfer," Working papers 203, Centre for Development Economics, Delhi School of Economics.
    5. Dermot Leahy & Catia Montagna, 2006. "'Make-or-Buy' in International Oligopoly and the Role of Competitive Pressure," Dundee Discussion Papers in Economics 197, Economic Studies, University of Dundee.
    6. Arti Grover, 2008. "Vertical FDI versus Outsourcing: A Welfare Comparison from the Perspective of the Host Country," DEGIT Conference Papers c013_009, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2009. "Can deunionization lead to international outsourcing?," Journal of International Economics, Elsevier, vol. 77(1), pages 109-119, February.
    8. Anuradha Roy & Ricardo Leiva, 2008. "Testing of a Structures Covariance Matrix for Three-Level Repeated Measures Data," Working Papers 0037, College of Business, University of Texas at San Antonio.
    9. Dermot Leahy & Catia Montagna, 2008. "Outsourcing Versus Fdi In Oligopoly Equilibrium," Dundee Discussion Papers in Economics 215, Economic Studies, University of Dundee.
    10. Mitra, Devashish & Ranjan, Priya, 2008. "Temporary shocks and offshoring: The role of external economies and firm heterogeneity," Journal of Development Economics, Elsevier, vol. 87(1), pages 76-84, August.
    11. Devashish Mitra & Priya Ranjan, 2005. "Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity," NBER Working Papers 11718, National Bureau of Economic Research, Inc.
    12. 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.
    13. Juan Carluccio & Thibault Fally, 2008. "Multinationals, technological incompatibilities and spillovers," Working Papers halshs-00586040, HAL.
    14. Olivier N. Godart & Holger Görg, 2016. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 15, pages 277-288, World Scientific Publishing Co. Pte. Ltd..
    15. Ma, Yue & Qu, Baozhi & Zhang, Yifan, 2010. "Judicial quality, contract intensity and trade: Firm-level evidence from developing and transition countries," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 146-159, June.
    16. Leahy, Dermot & Montagna, Catia, 2012. "Strategic investment and international outsourcing in unionised oligopoly," Labour Economics, Elsevier, vol. 19(2), pages 260-269.
    17. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
    18. Kabiraj, Tarun & Sinha, Uday Bhanu, 2016. "Strategic outsourcing with technology transfer under price competition," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 281-290.
    19. Bas, Maria & Carluccio, Juan, 2009. "Wage bargaining and the boundaries of the multinational firm," LSE Research Online Documents on Economics 28700, London School of Economics and Political Science, LSE Library.
    20. Dermot Leahy & Catia Montagna, 2011. "Economising, Strategising and the Decision to Outsource," Discussion Papers 11/17, University of Nottingham, GEP.

    More about this item

    Keywords

    Entry; Imitation; Multiple sourcing; Vertical technology transfer;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:108-112. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.