6.4 Influence of competitors and suppliers

Question 1

How does the number of competitors in a market affect individual businesses’ market power?

Answer 1

The greater the number of competitors and their total market share, the less market power individual businesses have.

Question 2

What must businesses consider when making pricing decisions in a highly competitive market?

Answer 2

Pricing decisions must be made in line with competitors’ prices, unless the business can achieve effective product differentiation.

Question 3

How does the ease of entry for new businesses into an industry impact market power?

Answer 3

If it is easy for new businesses to enter the industry, the market power of any one business will be low.

Question 4

How does the number of suppliers influence a business customer’s ability to negotiate prices and credit terms?

Answer 4

The smaller the number of suppliers, the less likely a business customer can influence prices and credit terms. If there are many suppliers, the customer has a better chance to negotiate lower prices and better credit terms.

Question 5

What happens if there are many suppliers competing with each other?

Answer 5

The customer business has an excellent chance of forcing supply prices down and demanding longer credit terms.

Question 6

Which model further explains factors determining competitive rivalry in an industry?

Answer 6

Porter’s Five Forces model explains factors that determine competitive rivalry in more detail.