Question

Shawn McGill is on the executive board for ABC pharmaceuticals. The company produces the number one selling cancer fighting drug on the market. Due to its incredible success ABC pharmaceuticals has decided to increase the cost of the drug from $8 a pill to $15 a pill. Which force is ABC pharmaceutical using to increase its drug price?

Answer 1

Answer:

The answer is: Bargaining power of suppliers

Explanation:

Michael Porter developed his Five Forces Framework as a management tool for analyzing competition. It is divided into:

1. Threat of new entrants
2. Threat of substitutes
3. Bargaining power of customers
4. Bargaining power of suppliers
5. Competitive rivalry

Bargaining power of suppliers: Pressure suppliers can exert on its costumers (individuals or organizations) by raising prices, lowering quality, or reducing availability of their products. When suppliers are strong enough to pressure their customers, usually the buyers will end up paying higher costs due to; higher prices, lower quality or reduced availability of the product.

In this case, since ABC Pharmaceutical is the leader in cancer fighting drugs, they will use their dominant supplier position to raise the price of their product affecting their customers (patients, insurance companies, other health care organizations).