What is the primary effect of high supplier concentration on bargaining power?
Understand the Problem
The question is asking about the impact of high supplier concentration on bargaining power, specifically what the primary effect is. It presents multiple-choice options to choose from regarding this effect.
Answer
High supplier concentration increases suppliers' power, reducing industry profit potential.
The primary effect of high supplier concentration on bargaining power is that it increases the suppliers' power, which can lead to reduced profit potential for the industry by allowing suppliers to raise prices or reduce the quality of goods and services.
Answer for screen readers
The primary effect of high supplier concentration on bargaining power is that it increases the suppliers' power, which can lead to reduced profit potential for the industry by allowing suppliers to raise prices or reduce the quality of goods and services.
More Information
High supplier concentration means fewer suppliers have control over the market, allowing them greater influence over prices and terms. This is a foundational concept of Porter's Five Forces model, which helps businesses understand their position in the competitive environment.
Tips
A common mistake is to assume more suppliers automatically increase competition and reduce their power. However, it's the concentration or fewness of powerful suppliers that enhances their bargaining power.
Sources
- Bargaining Power of Suppliers: Overview, Impact, and Examples - tipalti.com
- Bargaining Power of Suppliers - Corporate Finance Institute - corporatefinanceinstitute.com
- Porter's 5 Forces Model: Bargaining Power of Suppliers - 365financialanalyst.com
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