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CFA Level I · CFA Level I Exam · Industry and Competitive Analysis

An analyst studies an airline industry where a few aircraft manufacturers supply essential planes, there are no close substitutes for the aircraft, and airlines are fragmented and each represents a small share of manufacturer sales. The analyst would most likely conclude that, relative to the airlines, the manufacturers have:

The manufacturers most likely have strong bargaining power. Few suppliers, no close substitutes for aircraft, and fragmented airline customers who each account for little of sales all shift leverage to suppliers, letting them raise prices or dictate terms.

  1. Aweak bargaining power because airlines can easily switch
  2. Bstrong bargaining power because of supplier concentration and lack of substitutesCorrect
  3. Cequal bargaining power because both groups face high fixed costs

Explanation

Supplier power is high when suppliers are few, inputs lack substitutes, and customers are not important to the supplier's revenue. All three apply here. Easy switching is contradicted by the concentration of suppliers, and equal power is not supported.

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