Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

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

 

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