Job market paper

Beyond Cheap Supplies: Risk and Competition in Global Sourcing

Firms frequently source standardized inputs from multiple countries, a costly strategy that challenges standard trade models. This paper shows that firms diversify not only to gain variety but also to create competition among suppliers and to hedge against supply disruptions. Using French customs data, I provide causal evidence for this dual motive with a shift–share instrument that exploits exogenous changes in the geopolitical risk of potential new supplier countries. When firms diversify in response to these shocks, their incumbent suppliers are forced to lower prices substantially, revealing a strong pro-competitive effect concentrated among large firms. To interpret these findings, I develop and estimate a structural model of global sourcing that incorporates both disruption risk and oligopolistic competition. Counterfactual analyses reveal that while both channels matter, the competition mechanism plays a quantitatively larger role in shaping firms’ diversification behavior and price outcomes.

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