Outsourcing suppliers as downstream competitors: Biting the hand that feeds

In this paper, we highlight an aspect of supplier opportunism in the outsourcing paradox that has largely been ignored by extant research – the supplier as a direct competitor of the buyer firm. In light of this paradox, we offer a game-theoretic framework in which we identify conditions under which firms could alleviate or mitigate this outsourcing problem. Our results show that apart from transaction costs, firm-level capabilities (both ordinary and dynamic) play important roles in determining the make only, buy only, or make-and buy options a firm could exercise in countering the threat of the supplier as a potential competitor in the downstream marketplace.