GEP Research Paper 08/43
Why do Firms Engage in Multi-sourcing?
Justin Yifu Lin, Arijit Mukherjee and Yingyi Tsai
Summary
We provide an explanation for multi-sourcing, which is often found in the real world and refers to the situation where a final goods producer acquires homogenous components from different suppliers. In the presence of imitation under outsourcing, multi-sourcing helps to deter entry by the suppliers into the final goods market and enhances profitability of the outsourcing firm.
Abstract
We provide an explanation for multi-sourcing, which is often found in the real world and refers to the situation where a final goods producer acquires homogenous components from different suppliers. In the presence of imitation under outsourcing, multi-sourcing helps to deter entry by the suppliers into the final goods market and enhances profitability of the outsourcing firm.
JEL classification: F12, F23, L13, L24
Keywords: Entry, Imitation, Multi-sourcing
Issued in December 2008
This paper is available in PDF format