Why Do Firms Both Make and Buy? An Investigation of Concurrent Sourcing

Strategic Management Journal, Vol. 28, pp. 285-311, 2007

27 Pages Posted: 6 Feb 2007

Abstract

Transaction cost economics, neoclassical economics, and the firm capabilities literatures propose theories of the firm that typically depict firm boundaries determined by a dichotomous choice: the make or buy decision. However, none of these theories presents a satisfying explanation as to why firms would concurrently source, i.e., simultaneously make and buy the same good. This study combines these organizational economics theories and compares when firms make, buy, and concurrently source through surveying small manufacturing firms. Support was shown for aspects of all three theories, with evidence indicating that concurrent sourcing is a distinctly different choice, rather existing along a make/buy continuum.

Keywords: vertical integration, taper integration, make or buy decisions, sourcing

JEL Classification: D23, L22, L61

Suggested Citation

Parmigiani, Anne E., Why Do Firms Both Make and Buy? An Investigation of Concurrent Sourcing. Strategic Management Journal, Vol. 28, pp. 285-311, 2007, Available at SSRN: https://ssrn.com/abstract=960983

Anne E. Parmigiani (Contact Author)

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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