Does Supplier Competition Affect Asymmetric Cost Behavior?

This study examines the relation between supplier industry competition and asymmetric cost behavior. Analyzing data on customer- supp lier dyads of publicly traded U.S. firms for the period from 1991 to 2022, I find that the degree of cost of goods sold (COGS) stickiness decreases with the level of supplier industry competition. I conduct a series of robustness tests and confirm that the main findings are robust eve n fo llowing change ana lysis, e mp loying a lagged variab le, and e mp loying entropy ba lanc ing technique. F urther more, in a cross- sectiona l test, I find that the negative relationship between supplier competition and cost stickiness becomes more pronounced within manufacturing industry sectors, further supporting the main arguments. As a supplementary test, I examine whether the relationship between supplier competition and cost stickiness is changed depending on the nature o f costs. The results show a pos itive assoc iat ion betwee n supp lier industry co mpetit ion a nd the st ick iness o f se lling, general and administrative (SG&A) and operating costs. Overall, the present study provides contributions in several ways. This research contributes to the literature on supp ly cha in mana ge ment. W hile pr ior literature has large ly foc used on e xa mining the impact o f supp lier co mpetit ion and information sharing on firm performance and investment decisions, the present study suggests that firms consider supplier industry competition in the ir resource a llocat ion decision. In addition, this study adds to the literature on cost accounting by suggesting an alternative determinant of cost stick iness.