Journal article

A bargaining perspective on strategic outsourcing and supply competition

Catherine C De Fontenay, Joshua S Gans

Strategic Management Journal | John Wiley & Sons | Published : 2008


This article considers the outsourcing choice of a downstream firm with its own upstream production resources or assets. The novelty of the approach is to consider the outsourced function as involving resources consistent with the resource-based view of the firm. From a bargaining perspective, we characterize a downstream firm’s decision whether to outsource to an independent or to an established upstream firm. In so doing, the downstream firm faces a trade-off between lower input costs afforded by independent competition, and higher resource value associated with those who can consolidate upstream capabilities. We show that this tradeoff is resolved in favor of outsourcing to an established..

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