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Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

Potential factors are:

  • Supplier switching costs relative to firm switching costs
  • Degree of differentiation of inputs
  • Impact of inputs on cost and differentiation
  • Presence of substitute inputs
  • Strength of distribution channel
  • Supplier concentration to firm concentration ratio
  • Employee solidarity (e.g. labor unions)
  • Supplier competition: the ability to forward vertically integrate and cut out the buyer.