Journal article

Sourcing Competition under Cost Uncertainty and Information Asymmetry

Lusheng Shao, Xiaole Wu, Fuqiang Zhang

Production and Operations Management | Wiley | Published : 2019

Abstract

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..

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University of Melbourne Researchers

Grants

Awarded by National Natural Science Foundation of China


Funding Acknowledgements

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).