Within
a sector, companies work in two types of markets, the factor markets
(in which companies buy raw material, componenets, financial resources
and manual labour) and the product markets (in which they sell their
services to clients like distributors, consumers or other manufacturers).
In the
product markets, there are two factors that influence the strength
of a company's power of negotiation infront of their clients:
- Sensitivity
of the buyers with price
This depends
on:
- the
cost of the component over the total cost (for example, drinks companies)
- the
grade of differentiation of the product.
- the
intensity of the competition amongst buyers (for example, the car
sector).
- the
importance they give to the quality of a product.
- Relative
negotiation power
The following
factors influence the buyer's power of negotiation with regards to
the sellers:
- the
size and concentration of the buyers in respect to the suppliers.
- the
buyer's information
- the
possibility of vertical integration
