Competition or co-opetition? The impact of cross-channel spillovers on horizontal-sourcing decisions

Purpose: This paper explores optimal sourcing decisions between competing duopolists in an omnichannel environment. It analyzes how cross-channel spillover effects influence sourcing fees and highlights the interaction between horizontal sourcing and the role of cross-channel spillover effects. Design/methodology/approach: This paper develops a game-theoretic model with an entrant manufacturer (EM) and an incumbent manufacturer (IM), both selling products through online and offline channels. The IM has developed a component, and the EM can either source the component from the IM or develop it in-house. Findings: The EM is willing to source from the IM even if the total sourcing fees exceed its development cost. High negative spillovers decrease firms’ sourcing willingness, while high positive spillovers may increase or decrease such willingness. Horizontal sourcing may essentially change the role of spillovers, potentially converting them from a profit-reducing factor into a profit advantage. Originality/value: This paper offers valuable insights into horizontal sourcing strategy in omnichannel retailing, highlighting how firms can strategically respond to cross-channel spillover effects.