Question

If a supplier group wants to gain market power, according to the Porter five-forces model, what conditions must exist?

a. there is low differentiation by the supplier
b. there is a lack of importance of the buyer to the supplier group
c. there is not a dominance by a few suppliers
d. there is a significant importance of the buyer to the supplier group

Answer 1

For a supplier group to gain market power as per the Porter five-forces model, they should have differentiated products, an essential relationship with buyers, and a dominant position in the market with few competing suppliers.

Step-by-step explanation:

If a supplier group wants to gain market power according to the Porter five-forces model, certain conditions must exist. For a supplier to exercise more influence in a market, it would typically benefit from a few specific characteristics:

• High supplier differentiation, which would mean that there is a high level of uniqueness in what the suppliers offer.
• An important relationship to the buyer group, meaning that the buyer relies heavily on the supplier, giving the supplier power over negotiations.
• A dominance of a few suppliers in the market, as this concentration reduces competition and increases each supplier's influence.

Circumstances such as high economies of scale relative to market demand, the presence of oligopolies, and the ability to differentiate products also contribute to greater market power for firms.