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Learning by supplying and Competition Threat

Yi Fan Chen (), Alireza Naghavi and Shin-Kun Peng ()
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Yi Fan Chen: Singapore Management University
Shin-Kun Peng: National Taiwan University

No 456, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: This study proposes a model of learning by supplying in an international outsourcing framework, where the supplier of a relationship-specific input can reverse engineer and become a competitor to its partner in the final goods market. Transmitting knowledge to a more capable supplier therefore creates competitive threat despite the benefits it brings within an outsourcing relationship. In particular, in markets with less differentiated products and for standard inputs that require less knowledge to be shared, choosing an intermediate capability level supplier prompts a strategic expansion of output to deter supplier entry in the final goods market, resulting in higher profits and welfare. A highly capable supplier is instead accommodated as a rival and is a source of royalty income when the relationship specific input embeds more knowledge about the final product and when the competing varieties are differentiated.

Keywords: International outsourcing; Supplier heterogeneity; Competitive threat; Reverse engineering; Strategic predation; Technological capability; Learning by supplying; Royalty payment; Knowledge intensity (search for similar items in EconPapers)
JEL-codes: D23 F12 F23 L13 L22 L24 O34 (search for similar items in EconPapers)
Pages: 43
Date: 2019-12-20
New Economics Papers: this item is included in nep-com, nep-ind and nep-sea
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