Bargaining Power Is the Ability to Influence the Setting of Prices

Topics: Supply and demand, Cost, Customer service Pages: 2 (539 words) Published: March 23, 2013
Bargaining power is the ability to influence the setting of prices. Buyer power refers to the ability of customers of the industry to influence the price and terms of purchase. The bargaining power of customers is also described as the market of outputs. The ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Bargaining power of buyers occurs when leverage is given to the buyer and demand for lower prices, increased quality and more services are made. The amount of power enjoyed by a buyer group maybe determined by the concentration of buyers or volume of purchase. Additional occasion for high levels of buyer’s power may occur when the purchase represents a large portion of the buyer’s overall expenditures, if differentiation and switching costs are low, if there is likelihood of backward integration and if the buyer is fully informed about demand, market prices and supplier cost. The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monophony a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopolies exist, but frequently there is some asymmetry between a producing industry and buyers. The following tables outline some factors that determine buyer power. Buyers are Powerful if:

Buyers purchase a significant proportion of output distribution of purchases or if the product is standardized. for example-Circuit City and Sears' large retail market provides power over appliance manufacturers. Buyers are weak if:

Buyers are fragmented, no buyer has any particular influence on product or price. For example in garments industry there are so many kinds of customers there in the market. Prices are set by supply and demand and the market reaches the Pareto-optimal point where...
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