Supply Chain Bargaining Power and Cost Stickiness

Abstract

Given the essential role of supply chains in the economy, furthering our understanding of the interactions between trade partners is important. In this paper, I study the relation between cost stickiness and bargaining power over supply chain partners. I document evidence consistent with the argument that firms wield supply chain bargaining power to avoid cost stickiness by shifting high adjustment costs onto their trade partners. In particular, I show that the level of SG&A and COGS stickiness is negatively associated with firms’ bargaining power over their suppliers and customers. My results are robust to using industry competition as an alternative measure of supply chain bargaining power, therefore alleviating concerns about reverse causality. Moreover, my results are robust to lead-and-lag tests, alternative measures of supply chain bargaining power, inclusion of firm fixed effects, and among subsamples examined in prior studies. Overall, my study offers insights into whether and how supply chain relations influence firms’ resource adjustment costs.