Cost-driven outsourcing can weaken manufacturers' bargaining power, affecting their profitability. The type of contract used in negotiations and the structure of the industry play a crucial role in this. Wholesale-price contracts reduce competition between manufacturers, while two-part tariffs can either intensify or soften competition depending on the type of competition. Using two-part tariffs for outsourcing may lead to lower profits compared to in-house production, even if the suppliers are more cost-efficient. When outsourcing, manufacturers may earn higher profits by using a common supplier with strong bargaining power under quantity competition.