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

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  • David E. M Sappington

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.

Suggested Citation

  • David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
    • Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1631-1638
    Note: DOI: 10.1257/000282805775014344
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    References listed on IDEAS

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