Complementary Inputs, Mutual Outsourcing, and Supplier Encroachment

52 Pages Posted: 10 Sep 2020 Last revised: 28 Jul 2023

See all articles by Chrysovalantou Milliou

Chrysovalantou Milliou

Athens University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Konstantinos Serfes

Drexel University

Date Written: September 5, 2020

Abstract

Final goods are typically produced using multiple complementary inputs. We examine the incentives and implications of supplier encroachment incorporating this and allowing for the possibility of mutual outsourcing between the encroached supplier and the incumbent. First, we demonstrate that mutual outsourcing arises in equilibrium. Then, we demonstrate that encroachment can raise the wholesale price faced by the incumbent. Nevertheless, the incumbent can benefit from encroachment as it generates input sales to the encroached supplier. These would not occur with a single input. We also demonstrate that non-linear wholesale pricing has a non-trivial role for mutual outsourcing and encroachment.

Keywords: supplier encroachment; complementary inputs; input pricing; market entry

JEL Classification: D43; L11; L21; L22; L23

Suggested Citation

Milliou, Chrysovalantou and Serfes, Konstantinos, Complementary Inputs, Mutual Outsourcing, and Supplier Encroachment (September 5, 2020). Available at SSRN: https://ssrn.com/abstract=3686437 or http://dx.doi.org/10.2139/ssrn.3686437

Chrysovalantou Milliou (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Konstantinos Serfes

Drexel University ( email )

3220 Market Street
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

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