NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
An analyst studies a sector in which there are many small buyers, but only three large suppliers control a critical raw material with no substitutes. Under Porter's five forces, which force is most clearly strong here, squeezing industry profitability?
Supplier bargaining power is the strong force. Only three large suppliers control a critical input with no substitutes, so they can raise prices and dictate terms, squeezing industry margins. Buyers are many and small, so their power is weak.
- ABargaining power of suppliersCorrect
- BBargaining power of buyers
- CThreat of new entrants
- DRivalry among existing firms
Explanation
A few concentrated suppliers of an essential input with no substitutes can dictate prices and terms, which raises costs for industry firms. Many small buyers means buyer power is weak, so buyers are not the strong force here.
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