Bargaining Power of Buyer
- Bargaining power is the ability to influence the setting of
prices.
- Monopsonistic
or quasi-monopsonistic buyers will use their power to extract
better terms (higher profit margins or ) at the expense of the
market.
- In a truly competitive market, no one buyer can set the prices.
Instead they are set by supply and demand.
- Prices are set by supply and demand and the market reaches the
Pareto-optimal
point where the highest possible number of buyers are satisfied
at a price that still allow for the supplier to be profitable.
Supply and Demand
- The supply
curve is the relationship between price and supplied quantity.
Normally, the higher the price, the higher the supplied quantity
as more supplier will be interested to produce and sell at a higher
price.
- The demand
curve is the relationship between price and demanded quantity.
Normally, the lower the price, the higher the demanded quantity
as buyers will be willing to buy more at a lower price.
- In a truly competitive market, supply and demand meet at the
price where the supplied quantity equals the demanded quantity.
- If supplied quantity is higher, price will fall.
- If demanded quantity is higher, price will raise.
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Examples
Industries facing powerful buyers:
- Defense contractors have a limited set of politically motivated
buyers (governments).
- Sub contractors to car makers have a limited set of potential
clients, each commanding a large share of their market.
Industries facing weak buyers:
- Retailers face individual consumers with little or no power
at all.
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