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Two-sided market power and firm performance

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  • Rahaman, Mohammad M.
  • Zhang, Michael
  • Feng, Jiejian

Abstract

We examine the effects of demand-side (product market) and supply-side (supply chain) market power on firm profitability and the ease of access to bank financing. Using granular supply-chain and bank-loan information, we empirically demonstrate that both demand-side and supply-side power are associated with higher profitability and greater provisions for bank financing. However, product-market power appears to be marginally more beneficial than supply-chain power. Furthermore, the association between power and performance is non-linear and power beyond an optimal threshold can adversely impact performance. We show that the key insights of our analyses remain robust irrespective of alternative measures of performance, market power, and the nature of customer–supplier interactions. Using a game-theoretic analytical framework, we capture analytical insights consistent with our empirical findings. The novelty of our analyses is in showcasing that firm power emanating from both the demand-side and supply-side operations can significantly ameliorate performance and alleviate external financing constraints.

Suggested Citation

  • Rahaman, Mohammad M. & Zhang, Michael & Feng, Jiejian, 2022. "Two-sided market power and firm performance," Journal of Business Research, Elsevier, vol. 150(C), pages 585-605.
    • Handle: RePEc:eee:jbrese:v:150:y:2022:i:c:p:585-605
    DOI: 10.1016/j.jbusres.2022.06.026
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    More about this item

    Keywords

    Product market power; Supply chain power; Profitability; Cost of debt;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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