Question

In the context of Porter's five forces model, the bargaining power of suppliers (auto dealers) is a weak force when considering the example of auto dealers setting the price of new cars in which consumers are unable to verify the 'true price' of vehicles.
True / False.

Answer 1

Answer:

The correct answer is False.

Explanation:

There are several characteristics that indicate the degree of power of a supplier and one is that they are able to increase their prices without this having a detrimental effect on the volume of sales. Another is the ability to create informal or even formal agreements that control prices and supply. Most developed countries have extensive antitrust laws and regulations established to deter and penalize suppliers that fall into this type of activity, but recent antitrust court cases involving software, finance, health, public services, and oil companies suggest that collusion of suppliers remains widespread.

Instead of raising prices, suppliers in a strong negotiating position may choose to reduce the amount of product available, which is more effective if there are few substitutes with which buyers can change. Suppliers are also in a position of strength if the product or service they provide is an essential component of their customer's final product.

Other ways that suppliers can dominate include imposing costs or penalties to their customers if they decide to change providers. In addition, a supplier may decide that its best strategy for growth and therefore greater profitability is to buy or create agreements with other organizations at the end of the supply chain in order to increase control of distribution channels.