Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279396 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10645
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper explores why competing firms can choose to outsource to an external common supplier that does not have a cost advantage in input production. The supplier, through its contract offers, manages to generate asymmetry, to alter product market competition, and to extract profits from the competing .rms. Two-part tariffs and sequential contracting are both crucial for the emergence of outsourcing. The supplier purposefully avoids industry pro.t maximization to enlarge its profits share. Both consumer and total welfare benefit from the presence of an otherwise redundant supplier in the market.
Subjects: 
outsourcing
strategic outsourcing
make-or-buy
two-part tariffs
common supplier
sequential contracting
JEL: 
D43
L11
L22
L23
L24
Document Type: 
Working Paper
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