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

Abstract

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.