Bargaining Power
of Suppliers
High supplier bargaining
power constrains market participants' ability to negotiate pricing, quality, and
service. As supplier power increases, industry profit margins will decline
because costs will increase. Companies are unable to pass price increases on to
customers, as customers become price-sensitive. In the mid-nineties, gasoline
retailers were affected by the power that oil refiners had to increase the cost
of gasoline. The comparable size between the supplier and the buyer plays a role
in this relationship. If the suppliers are larger than the buyers, they tend to
have a higher degree of bargaining power. A small, familyrun gas station being
supplied by a large oil company is an example of this relationship. Since the
familyrun business is at the behest of a few large suppliers, the bargaining
power of the supplying oil companies is greater.
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