Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279269 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10519
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We examine the incentives and implications of supplier encroachment, when final good produc-tion requires the use of multiple complementary inputs and the entry of a supplier into the final good market gives rise to mutual outsourcing of inputs between the encroaching supplier and the incumbent. We show that, post encroachment, mutual outsourcing between the competing final good producers is indeed the equilibrium. We also show, contrary to existing results, that encroachment can raise the input price paid by the incumbent and reduce consumer surplus. Nevertheless, the incumbent can benefit from encroachment due to the generation of a new profits source: input sales to the encroaching supplier. It can benefit even without enjoying a cost or a first mover advantage. This would have been impossible in an environment with a single input and without mutual outsourcing. Our analysis yields novel managerial, empirical and policy implications.
Subjects: 
supplier encroachment
complementary inputs
mutual outsourcing
outsourcing
input pricing
market entry
JEL: 
D43
L11
L21
L22
L23
Document Type: 
Working Paper
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