Gad Allon, Operations, Information and Decisions, The Wharton School
Abstract: The “value chain smile” posits that firms capture the most value at the upstream (R&D/design) and downstream (marketing/customer-facing) ends of the supply chain, yet empirical evidence remains mixed. We argue that this ambiguity arises because existing studies rely on globally anchored, industry-level measures of upstreamness that obscure firm-specific supply network structure. This project proposes to develop and empirically test a firm-centric, local value chain framework that maps how value is created and captured across a firm’s actual suppliers and customers. Leveraging detailed supply network data and firm-level financial information, we will construct local value chain curves, characterize their shapes, and study how these configurations evolve over time. The analysis will focus on identifying the role of firm-level investments—particularly R&D and marketing—in enabling firms to attain high-value positions without changing their structural network location. By deepening measurement and expanding data coverage, this project aims to reconcile conflicting evidence on the value chain smile and provide a micro-founded understanding of value creation in supply networks.