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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A packaged-water company notices that its raw material supplier has merged with its only two rivals' suppliers, leaving one dominant supplier who can raise prices and dictate terms. In Porter's Five Forces framework, which force has strengthened most?

Bargaining power of suppliers has strengthened. When supply is concentrated in one dominant supplier and the firms have few alternative sources, the supplier can raise prices and set terms, squeezing industry profitability. The other forces concern entrants, customers or substitute products, not input providers.

  1. AThreat of new entrants
  2. BBargaining power of suppliersCorrect
  3. CBargaining power of buyers
  4. DThreat of substitutes

Explanation

When few suppliers control inputs and buyers in the industry have little alternative, suppliers can dictate price and terms. This raises supplier power. Buyer power relates to customers, not input providers, so option C is wrong.

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