Who captures the value in a sector?

12 October 2026 · 1 min read · Pokharna Research

Every sector is a chain: inputs, production, distribution, and the final customer. Profit is not shared equally along that chain.

A practical method

1. Draw the chain from raw materials to the end customer.
2. For each stage, list a few representative companies and compare their operating margins and returns on capital over several years.
3. Look for the stage that consistently earns more, and ask why: scarcity, scale, brand, regulation, switching costs or contracts.
4. Check whether that advantage is stable or being competed away.

What usually signals pricing power

• Margins that stay steady when input costs rise.
• Customers who accept price increases without losing volume.
• Few alternative suppliers at that stage of the chain.

What usually signals the opposite

• Margins that swing with commodity prices.
• A handful of large customers that dictate terms.
• Many look-alike competitors.

Caution

The profit pool can move over time, for example when a supplier integrates forward or a customer integrates backward. Treat any map as dated and state the period it covers.

value chainpricing powermargins