Concurrent sourcing and external supplier opportunism

When a firm simultaneously makes and buys the same components then the firm uses concurrent sourcing. This paper presents an agency model for explaining how and when concurrent sourcing reduces the likelihood of external supplier opportunism. In the proposed model, the external supplier’s expected costs of opportunism are determined as a product of four factors. The four factors are: likelihood of discovering supplier opportunism, buyer’s internalized quantity as reaction to supplier opportunism, asset specificity of external supplier’s investments, and multiplicator effects. Each of these factors are explained and discussed in the paper. The paper ends by offering a number of theoretical and managerial implications.