Faculty of Economics and Business Administration Publications Database

Single Sourcing versus Multiple Sourcing

Volume: 39
Number: 1
Pages: 199 - 213
Month: Spring
ISSN-Print: 1756-2171
Link External Source: Online Version
Year: 2008

We show that in contrast to results in the extant literature, single sourcing may not be the optimal strategy of a buyer facing suppliers with strictly convex costs. As we argue, previous findings relied crucially on the joint assumption that, first, there is only a single buyer and that, second, procurement takes place in an auction organized by the buyer. Relaxing these restrictions, we obtain a richer set of results. In particular, we show that even in the original setting, where suppliers bid, committing to single sourcing is only optimal if the respective buyer controls a sufficiently large fraction of the whole procurement market.