Reliance on Major Customers and Product Market Competition

Although reliance on major customers has been growing over time, the literature has been largely silent on the determinants of customer base structure. This paper shows that low levels of product market competition in the customer industry is one important factor that can encourage supplier firms to establish relationship with major customers, and enhance existing ones. In support of the argument, we find that the fraction of suppliers’ total sales to major customers is positively associated with customer industry product market concentration. We argue that the recent increase in concentration of customer industries could have increased reliance on major customers.

Larkin is from York University (ylarkin@schulich.yorku.ca). I would like to thank Gustavo Grullon, Rui Duan, Lilian Ng and Roni Michaely for helpful comments. Larkin acknowledges research grant no. 435-2019-0928 from the Social Sciences and Humanities Research Council of Canada.