Sourcing Competition under Cost Uncertainty and Information Asymmetry
Lusheng Shao, Xiaole Wu, Fuqiang Zhang
Production and Operations Management | Wiley | Published : 2019
Driven by increasing costs in the traditionally regarded low‐cost manufacturing bases (e.g., China), many firms have started to outsource their production to the regions of even lower costs (e.g., Southeast Asia). However, a new environment may involve higher cost uncertainty and severer information asymmetry. Motivated by these observations, we consider a sourcing game where competing firms choose between a supplier with transparent certain cost (type‐C supplier) and a supplier with potentially lower but less transparent, uncertain cost (type‐U supplier). We characterize the equilibrium of the sourcing game and study how different parameters affect the firms’ sourcing strategy and profit pe..View full abstract
Awarded by National Natural Science Foundation of China
Research of the second author is supported by the National Natural Science Foundation of China (Grant Nos. 71622001, 71571047, 91746302, and 71490723). Research of the third author is supported by the National Natural Science Foundation of China (Grant Nos. 71520107002 and 71929201).