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An Efficiency Explanation for Why Firms Second

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  • Dick, Andrew R

Abstract

Firms facing research costs and demand uncertainty may engage in second-sourcing in which potential suppliers agree to pool production facilities. The author shows how sellers and buyers both can benefit from the practice. Second-sourcing allows firms to meet a wider range of possible rates of demand and often to supply a given rate of demand at a lower total cost than under noncooperation. Buyers benefit through a reduced probability of stock-outs and frequently a lower purchase price. Semiconductor industry data are found to be consistent with the paper's predictions. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Dick, Andrew R, 1992. "An Efficiency Explanation for Why Firms Second," Economic Inquiry, Western Economic Association International, vol. 30(2), pages 332-354, April.
    • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:2:p:332-54
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    Cited by:

    1. Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    2. Martin K. Perry & József Sákovics, 2003. "Auctions for Split‐Award Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 215-242, June.
    3. Park, Sangin, 2009. "An empirical evaluation of the 1986 Semiconductor Trade Arrangement," Japan and the World Economy, Elsevier, vol. 21(4), pages 349-357, December.
    4. Du, Julan & Lu, Yi & Tao, Zhigang, 2009. "Bi-sourcing in the global economy," Journal of International Economics, Elsevier, vol. 77(2), pages 215-222, April.

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