CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
In Porter's framework, an industry's suppliers are most likely to have strong bargaining power when:
Suppliers have strong bargaining power when a few of them provide a critical input that has no close substitutes. Concentration and lack of alternatives let them raise input prices, squeezing industry margins, whereas interchangeable inputs and low switching costs weaken them.
- Amany suppliers offer interchangeable inputs
- Ba few suppliers provide a critical input with no close substitutesCorrect
- Cswitching to another supplier costs the buyer very little
Explanation
Supplier power rises when suppliers are concentrated, inputs are critical and differentiated, and switching costs are high. The other two options describe conditions that weaken suppliers because buyers can easily substitute.
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