Contracting with multiple suppliers: A multi‐item buyer's make versus buy decision

Abstract We consider a multi‐item buyer's make versus buy decision. The buyer sells two substitutable products with uncertain demand. Each product requires different item, which the procures from separate suppliers (one for each item) who offer quantity‐payment contracts under asymmetric information. can one of items but not both. compare expected profit between buying both and making item (and other), when it at same cost as supplier, well gain reactive production capability by making. find that is higher than if substitutability above threshold (but extremely high). This because interaction suppliers' increases informational rents more suppliers, compared to increases. On contrary, in complete information scenario wholesale price contracts), we will never prefer long high. These are novel findings on how inter‐linked incomplete influence decision counter‐intuitive manner. Managerially, these results imply multi‐product may keep its supplier even produce supplier.