Product Market Competition, Competitive Strategy And Cost Stickiness

In management accounting, cost behavior refers to the relationship of interdependencebetween costs and the organization’s level of activity. The traditional theory of cost behaviorassumes the relationship between costs and the activity level is a linear. That is to say, the cost ofenterprise and its business volume increase or decrease proportionally balanced. This means thatthe costs are driven only by the change of the activity level in the current period, nothing to dowith the company’s existing production capacity, expected for the future, the managers’ choice,and other factors. Contemporary studies on cost behavior have shown that, costs increase morewith activity increases than they decrease in response to equivalent activity decreases. Thissticky cost behavior contradicts the traditional model which assumes that costs behavesymmetrically for activity increases and decreases.Currently, domestic scholar research costs stickiness mainly in existence, the basiccharacteristics and influencing factors, and did not explore the impact of product marketcompetition on cost stickiness. In view of this, using data for China’s listed companies in stockmarkets of Shanghai and Shenzhen over the period2003-2011, we find:1) Selling costsadministrative costs as a whole behave sticky, and selling costs differs significantly fromadministrative costs in cost stickiness. The stickiness of selling costs is not significant or evenanti-viscous, whereas administrative costs behave sticky significantly.2) The results show that thedegree of product market competition matter to cost stickiness. The more intense the productmarket competition is, the less sticky costs are.3) Using a different competitive strategy willexhibit different cost behavior. Implementation of differentiation strategy will be to strengthenthe level of cost stickiness, and the implementation of cost leadership strategy will undermine thelevel of cost stickiness.