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The presence of powerful buyers reduces the profit potential in an industry. Buyers increase competition within an industry by forcing down prices, bargaining for improved quality or more services, and playing competitors against each other. The result is diminished industry profitability.
The bargaining power of buyers comprises one of Porter’s five forces that determine the intensity of in an industry. The others are barriers to entry, industry rivalry, the threat of substitutes and the bargaining power of suppliers.
The power of an industry’s important buyer groups depends upon:
The following conditions indicate that a buyer group is powerful:
Porter, M. (1998). Competitive Strategy. New York: Free Press, pp. 24-27.