Strategic Dual Sourcing as a Driver for Free Revealing of Innovation

33 Pages Posted: 15 May 2015

See all articles by Noriaki Matsushima

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Lex Zhao

RIEB, Kobe University

Date Written: May 11, 2015

Abstract

This paper examines the role of dual sourcing (e.g., outside options) in vertical and horizontal relations. In a bilateral monopoly market, if either the upstream or downstream firm has outside options, the other firm could lose from seemingly positive shocks, e.g., market expansion or technology improvements. We extend this setting to a bilateral duopoly market in which each downstream firm has outside options and upstream firms can engage in cost reducing investments and generate technological spillovers. We find that each upstream firm has an incentive to voluntarily generate technological spillovers to its upstream rival if the downstream firms have better outside options.

Keywords: Dual sourcing, Outside option, Spillover, Vertical relations

JEL Classification: L13, O32, M11, C72

Suggested Citation

Matsushima, Noriaki and Zhao, Laixun, Strategic Dual Sourcing as a Driver for Free Revealing of Innovation (May 11, 2015). ISER Discussion Paper No. 936, Available at SSRN: https://ssrn.com/abstract=2606485

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

Laixun Zhao

RIEB, Kobe University ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
98
Abstract Views
495
Rank
485,733
PlumX Metrics