Bargaining power
How far suppliers or buyers can push prices in their own favour. Greater when they are concentrated, or when they can switch easily and the other side cannot.
Where you will meet it
Bargaining power appears in 5 learning outcomes on the CFA syllabus. A few of them:
- Analyse an industry through the five competitive forces
“Industry profitability is shaped by the threat of new entrants, which depends on barriers such as scale, capital requirements and regulation; the bargaining power of suppliers and of buyers, each stronger when concentrated or when switching is easy for them and hard for the other side; the threat of substitutes performing the same function differently; and the intensity of rivalry among existing competitors, which rises with fixed costs, slow growth and undifferentiated products.”
- Show how inflation and a firm's competitive standing shape sales and cost forecasts
“Porter's five forces are the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and rivalry among existing competitors.”
- Set out the questions an industry and competitive analysis should answer
“The first question is how attractive the industry is for long-run profitability, which depends on rivalry, the threat of new entrants and substitutes, and the bargaining power of suppliers and buyers.”
- Explain what sets ultra-high-net-worth clients apart from other private wealth clients
“They demand privacy and security, access to direct and co-investment opportunities, and institutional-quality reporting, and they have the bargaining power to negotiate fees.”
Practise it
Practise bargaining power until it is automatic: questions that explain every wrong option.
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