“Supply Disruptions, Asymmetric Information, and a Dual Sourcing Option
dc.contributor.author | Beil, Damien R. | |
dc.contributor | Yang, Zhibin | |
dc.contributor | Aydin, Goker | |
dc.contributor | Babich, Volodymyr | |
dc.date.accessioned | 2008-10-07T17:17:36Z | |
dc.date.available | 2008-10-07T17:17:36Z | |
dc.date.issued | 2008-09 | |
dc.identifier | 1116 | en |
dc.identifier.uri | https://hdl.handle.net/2027.42/61153 | |
dc.description.abstract | We study a manufacturer's strategic use of a dual-sourcing option when facing suppliers who possess private information about their likelihood of experiencing a supply disruption. The manufacturer can diversify its supply by ordering from both suppliers, but we find that the cost of doing so is inflated under asymmetric information due to the suppliers' incentives to misrepresent their reliabilities. If the manufacturer instead sole-sources, competition between the suppliers curbs their informational rents. Therefore, asymmetric information pushes the manufacturer away from diversification and towards sole-sourcing. Surprisingly, the additional cost that asymmetric information imposes on diversification may cause the manufacturer to cease diversifying in reaction to uniformly eroding supply base reliability, while it would do just the opposite under symmetric information. Despite these trends away from diversification, the value of the dual-sourcing option should not be underestimated for manufacturers who are unsure of their suppliers' reliabilities - the dual-sourcing option is actually more valuable under asymmetric information than under symmetric information if the manufacturer's cost of replacing a unit lost due to a disruption is moderate. We also analyze the eect of codependence between supply disruptions, and find that a reduction in supplier codependence increases the manufacturer's value of information. Therefore, strategic actions to reduce codependence between supply disruptions should not be seen as a substitute for learning about the suppliers' reliabilities. | en |
dc.format.extent | 522706 bytes | |
dc.format.mimetype | application/pdf | |
dc.subject | Supply Risk | en |
dc.subject | Mechanism Design | en |
dc.subject | Diversification | en |
dc.subject.classification | Business Economics | en |
dc.title | “Supply Disruptions, Asymmetric Information, and a Dual Sourcing Option | en |
dc.type | Working Paper | en_US |
dc.subject.hlbsecondlevel | Economics | en_US |
dc.subject.hlbtoplevel | Business | en_US |
dc.contributor.affiliationum | Ross School of Business | en |
dc.contributor.affiliationumcampus | Ann Arbor | |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/61153/1/1116_Damian.pdf | |
dc.owningcollname | Business, Stephen M. Ross School of - Working Papers Series |
Files in this item
Remediation of Harmful Language
The University of Michigan Library aims to describe library materials in a way that respects the people and communities who create, use, and are represented in our collections. Report harmful or offensive language in catalog records, finding aids, or elsewhere in our collections anonymously through our metadata feedback form. More information at Remediation of Harmful Language.
Accessibility
If you are unable to use this file in its current format, please select the Contact Us link and we can modify it to make it more accessible to you.