Supplier Encroachment with Mutual Outsourcing

Arbeitspapier

We examine the incentives and implications of supplier encroachment, when final good produc-tion requires the use of multiple complementary inputs and the entry of a supplier into the final good market gives rise to mutual outsourcing of inputs between the encroaching supplier and the incumbent. We show that, post encroachment, mutual outsourcing between the competing final good producers is indeed the equilibrium. We also show, contrary to existing results, that encroachment can raise the input price paid by the incumbent and reduce consumer surplus. Nevertheless, the incumbent can benefit from encroachment due to the generation of a new profits source: input sales to the encroaching supplier. It can benefit even without enjoying a cost or a first mover advantage. This would have been impossible in an environment with a single input and without mutual outsourcing. Our analysis yields novel managerial, empirical and policy implications.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10519

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Business Objectives of the Firm ; Firm Organization and Market Structure ; Organization of Production
• Subject: supplier encroachment ; complementary inputs ; mutual outsourcing ; outsourcing ; input pricing ; market entry

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Milliou, Chrysovalantou ; Serfes, Konstantinos
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/279269
• Last update: 10.03.2025, 11:44 AM CET