CMA Intermediate · Operations Management and Strategic Management · Strategic Analysis and Strategic Planning
A cement manufacturer in India finds that a handful of large infrastructure contractors buy most of its output, the product is undifferentiated, and the contractors can easily switch among cement suppliers. Which force is most clearly strong here?
Bargaining power of buyers is strong. When a few large buyers account for most sales, the product is undifferentiated and switching costs are low, buyers can play suppliers against each other and force down prices, which reduces industry profitability.
- ABargaining power of buyersCorrect
- BBargaining power of suppliers
- CThreat of new entrants through patents
- DRivalry reduced by high product differentiation
Explanation
Few large buyers with a large share of purchases, standard products and low switching costs give buyers strong bargaining power, letting them press for lower prices. The product is undifferentiated, so differentiation does not reduce rivalry, and nothing mentions patents or suppliers.
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