This paper considers the outsourcing choice of a downstream firm with its own upstream production resources or assets. The novelty of the approach is to consider the outsourced function as involving resources consistent with the resource-based view of the firm. From a bargaining perspective, we characterise a downstream firm's decision as to whether to outsource to an independent or established upstream frim. In so doing, that firm faces a trade-off between lower input costs afforded by independent competition and higher resource value associated to those who can consolidate upstream capabilities. We show that this trade-off is resolved in favour of outsourcing to an established firm.
Available at: http://works.bepress.com/joshuagans/37/