Mergers and acquisitions (M&As) by first‐tier suppliers, referred to as the supply base, are dynamic and drastic changes in supply chain structure and relationships that affect focal firm performance. In particular, the impact of M&As in a supply base depends on the concentration and differentiation of the supply base, which affects power–dependence relationships in the supply chain. This study examines the effect of supply base M&As on focal firms’ cost of goods sold (COGS). In addition, this study explores the role of power relationships by investigating the moderating effects of supply base concentration and differentiation. Using secondary panel data assembled from four different data sources, this study constructs econometric models and empirically examines the relationship between supply base M&As and focal firm cost efficiency. Our findings indicate that supply base M&As are positively associated with focal firm COGS. This result suggests that potential efficiency gains from M&As in supply bases may not translate to benefits for the focal firm because suppliers may also gain bargaining power from M&As. However, the effect of supply base M&As on focal firm COGS is attenuated when the supply base is less concentrated in terms of their transaction percentage with suppliers and more differentiated in terms of industry and business scopes. These are situations where suppliers less effectively obtain or employ bargaining power from M&As. These findings make important contributions to the operations management literature.
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