Document Type
Discussion Paper
Publication Date
11-1-2006
CFDP Number
1589
CFDP Pages
21
Abstract
We show that intermediate goods can be sourced to firms on the “outside” (that do not compete in the final product market), even when there are no economies of scale or cost advantages for these firms. What drives the phenomenon is that “inside” firms, by accepting such orders, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final product. Thus they have incentive to quote high provider prices to ward off future competitors, driving the latter to source outside.
Recommended Citation
Chen, Yutian; Dubey, Pradeep; and Sen, Debapriya, "Outsourcing Induced by Strategic Competition" (2006). Cowles Foundation Discussion Papers. 1882.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1882