The
firms in an industry operate in 2 types of
markets :
1.
the market for inputs :
factors of production
2.
the market for outputs they
sell to customers (goods & services).
Dealing
with the sales to customers, 2 sets of factors
are important in determining the strength
of buying power :
1.
Buyers' price sensitivity
Example : competition in the
world automobile industry : components suppliers
are subject to greater pressures for lower
prices, higher quality & faster delivery.
More quality is important, less
buyers are sensitive to the price.
2. Several
factors influence the bargaining power of
buyers :
1.
Size of concentration of buyers
relative to suppliers.
2.
Buyers' information : informations
about suppliers and their costs & prices
3.
Ability to integrate vertically :
do it yourself to reduce the dependence.
Bargaining
power of suppliers
Analysis analogous
to the analysis of buyers.
Source
: Contemporary Strategic Analysis, Robert M. Grant, 3th edition, Blackwell, 1998 p. 51- 65