Is My Supplier Holding Five Aces?
The Bargaining Power of Suppliers
A firm’s profitability can be strongly influenced by the bargaining power of suppliers. Your firm may be a supplier with bargaining power. Alternatively, your firm may purchase materials from a supplier with a great deal of bargaining power. The purpose of this chapter is to outline the factors that determine supplier bargaining power.
The theory underlying gains from trade is that all transactions are mutually beneficial and that the opportunity cost of buyers and sellers drives the final price. Buyers don’t have to purchase the good from a given firm; they can buy from that firm, from one of its competitors, or not at all. Buyers must recognize that firms also have ...
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