On the Irrelevance of Input Prices for Make-or-Buy Decisions

David E. M. Sappington

American Economic Review, 2005, vol. 95, issue 5, pages 1631-1638

Abstract: This paper demonstrates that input prices need not reflect the costs of an efficient incumbent supplier in order to induce entrants to implement efficient make-or-buy decisions. Because of strategic downstream considerations, entrants may always undertake efficient make-or-buy decisions, regardless of the prices at which they are authorized to buy key inputs from incumbent suppliers.

Date: 2005
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