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7. Conclusion
In this study, we examine whether customer-supplier relationship affect firm's cost
structure. Anderson et al. (2003) show that sticky cost occurs because of deliberate
managerial decision to adjust the committed resources. We find that cost behavior is less
sticky for suppliers with more concentrate-customer base. Additional analysis shows that
for suppliers with high level of customer concentration, suppliers' costs are less sticky
when customer's sales decrease. For sample of low level of customer concentration,
suppliers’ costs do not response to customer's sales change. The results provide evidence
that supplier-customer relationship has effect on firm's cost structure. Our result implies
that when supplier have few major customers, there are more information transfers along
the supply chain and managers of suppliers are more certain about future demand; thus the
stickiness of cost is reduced.
This study contributes to the literature in several ways. Chang et al. (2015) find
negative association between cost elasticity and customer concentration. We provide new
evidence that customer concentration is negatively associated with cost stickiness. In
addition, we also show that information transfers are strengthened when suppliers have
high level of customer concentration. Ak and Patatoukas (2016) suggest that collaboration
along supply chain helps suppliers increase their inventory efficiency. Our result supports
their view by showing that this collaboration helps suppliers know more about future
demand, adjust their costs timely, and thus reduce the stickiness of costs.
One way forward is to consider the effect of customer sales change in multiple
periods. For example, Banker et al. (2014) provide a two-period to test asymmetric cost
behavior. Future studies can try to find the association along multiple periods. Another
way is to examine whether customer event will affect suppliers cost decision. Our study
only provides the evidence on customers' sales changes. Future studies can incorporate
other determinants to have better understanding about firms' cost behavior.