Game Theoretical Analysis of Cooperative Sourcing Scenarios

As an emerging trend in outsourcing, cooperative sourcing is the merging of similar processes of several firms when, for example, several banks merge their payments processing and the underlying IT to jointly realize economies of scale. However, what are conditions of stable outsourcing coalitions? How to allocate costs within the outsourcing value web? We present a micro economic model for analyzing cooperative sourcing decisions. Using game-theory equilibrium analysis, distribution rules of cooperative sourcing benefits are evaluated and necessary conditions for stable sourcing coalitions are identified. We formally prove that a proportional allocation of costs will lead to stable coalitions, while the equal distribution of benefits or the Shapley value will not. Still, a small game theoretic experiment indicates that deciders not knowing about the theoretical results tend to choose inefficient allocations leading to instable sourcing networks.