Strategic Dual Sourcing as a Driver for Free Revealing of Innovation

Seminario Micro

Noriaki Matsushima (with Laixun Zhao)

Osaka University & UAB

12-Feb-2015

Seminar 1 – 14:30

This paper examines the important role of dual sourcing (e.g., outside options) in vertical and horizontal relations. With dual sourcing, either the upstream or downstream firm could lose from potential gains brought about by positive shocks, e.g., market expansion or technology improvement. This mechanism has wide applications in for instance suppliers’ incentives in cost reduction and quality improvement, upstream collaboration and technology spillovers. In an extreme, rival suppliers may compete to give out their technology for free.