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Supply Chain Resilience, Interference and Competition with Geopolitical Tensions

Author

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  • Gehrig, Thomas
  • Stenbacka, Rune

Abstract

We characterize investments in supply chain resilience in a geopolitical duopoly. The domestic firm balances the option to benefit from potential competitive advantages against riskiness and geopolitical instability associated with foreign sourcing. We show that the domestic firm has insufficient incentives to invest in supply chain resilience, thereby justifying a subsidy policy. We characterize conditions for underinvestment. We also characterize a number of factors which are central for optimal subsidy policy.

Suggested Citation

  • Gehrig, Thomas & Stenbacka, Rune, 2025. "Supply Chain Resilience, Interference and Competition with Geopolitical Tensions," CEPR Discussion Papers 20819, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20819
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    File URL: https://cepr.org/publications/DP20819
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts

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