Customer concentration and over-investment
APPLIED ECONOMICS(2020)
Abstract
This paper investigates the impact of customer concentration on a supplier firm's over-investment behaviour. Based on a large sample analysis on the US market, we find that a supplier firm with higher degree of customer concentration is likely to over-invest beyond the optimal investment level determined by investment opportunities. We also reveal that the positive association between customer concentration and over-investment weakens when the largest customer is a government entity, when the duration of supplier-customer relationship extends, and when the supplier firm captures larger market shares in its industry.
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Key words
Customer concentration,over investment,powerful customer
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