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Strategic dual sourcing as a driver for free revealing of innovation

Listed author(s):
  • Noriaki Matsushima
  • Laixun Zhao

This paper examines the role of dual sourcing (e.g., outside options) in vertical and horizontal relations. In a bilateral monopoly market, if either the upstream or downstream firm has outside options, the other firm could lose from seemingly positive shocks, e.g., market expansion or technology improvements. We extend this setting to a bilateral duopoly market in which each downstream firm has outside options and upstream firms can engage in cost reducing investments and generate technological spillovers. We find that each upstream firm has an incentive to voluntarily generate technological spillovers to its upstream rival if the downstream firms have better outside options.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2015/DP0936.pdf
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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0936.

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Date of creation: May 2015
Handle: RePEc:dpr:wpaper:0936
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