Abstract
We investigate the timing, magnitude, and direction of the relation between changes in product market competition across vertically related industries over the period 1978-2008. We document that changes in customer industry concentration are positively related to subsequent changes in supplier industry concentration consistent with changes in customer industry concentration prompting changes in supplier industry concentration. We find evidence that increased concentration in customer and supplier industries, perhaps reflecting countervailing power motives for horizontal mergers and acquisitions, explain in part the observed positive relation; however, we also find robust evidence that decreases in concentration perhaps reflecting entry waves in vertically related industries are also important determinants of the observed relation. Our results have implications for those papers that examine the association between the level of product market competition and important corporate finance policy choices and asset pricing.
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