Why firms make when they can buy? Resource redeployability & firm vertical boundaries

Strategy & Business Policy

Speaker: Georg Chondrakis

Professor - ESADE

Conference  Jouy-en-Josas / room meeting S121

Abstract: 

Why do firms establish in-house capacity in addition to relying on external suppliers? We argue that plural sourcing is particularly attractive when internally controlled resources can be redeployed across tasks as their relative value changes. This switching option reduces the effective irreversibility of in-house investment, while continued access to external suppliers allows firms to cover the focal task when internal resources are redirected. We test this argument in U.S. patent prosecution, where patent attorneys can shift from prosecution to supporting enforcement, whereas patent agents are less broadly applicable. Leveraging the Supreme Court’s eBay v. MercExchange decision, we show that litigation-exposed firms became more likely to establish in-house prosecution capacity, especially by hiring attorneys rather than agents. These findings link redeployability to plural sourcing, firm boundaries, and human capital.