Competitive actions and supply chain relationships: How suppliers' value-diminishing actions affect buyers' procurement decisions

While greater competitive activity is generally associated with competitive advantage, certain competitive actions by a supplier may have spillover effects that adversely impact buying firms, leading them to reduce future purchases from the supplier. We study the effects of competitive actions in the context of vertical buyer-supplier relationships. Specifically, leveraging insights from screening theory, we examine how a supplier firm's value-diminishing competitive actions-moves that may negatively impact buyer firms-lead to subsequent reductions in the buyer's procurement allocations and how contextual factors moderate such adverse effects. We test the associated hypotheses using a panel dataset comprising 12,690 dyadic buyer-supplier observations. A series of econometric analyses provide consistent evidence that a supplier's value-diminishing actions are associated with decreases in the buyer's purchases from the supplier, thus highlighting the dark side of competitive actions. Furthermore, we find that the supplier's downstream vertical relatedness and the degree to which rival suppliers pursue value-diminishing actions moderate this effect. Our findings, thus, add to our understanding of factors that shape the success and continuity of supply chain relationships and help supplier firms evaluate the economic viability of their competitive actions.

Automated summary

Although greater competitive activity is usually beneficial for gaining a competitive advantage, certain competitive actions by suppliers can have negative effects on buying firms, leading to reduced future purchases. This study focuses on vertical buyer-supplier relationships and investigates how a supplier's value-diminishing competitive actions can lead to decreases in the buyer's procurement allocations, with contextual factors playing a moderating role. Using a panel dataset of 12,690 buyer-supplier observations, econometric analyses consistently demonstrate the association between a supplier's value-diminishing actions and reduced purchases from the supplier. The downstream vertical relatedness of the supplier and the extent to which rival suppliers engage in value-diminishing actions are found to moderate this effect.