How the interactions between firms along a supply chain affect their asset prices

The finance literature has neglected until recently the study of how customer-supplier strategic interactions may affect firms’ asset prices. Maria Cecilia Bustamante investigates how a firm’s ability to negotiate input prices in supply chains affects its valuation and expected returns. She finds that firms with greater impatience to invest have less bargaining power while negotiating input prices, thus extracting a lower fraction of the profits occurring along a supply chain. Firms with greater vertical bargaining power, such as Amazon, are not only more valuable, but also yield higher expected returns.