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The presence of powerful suppliers reduces the profit potential in an industry. Suppliers increase competition within an industry by threatening to raise prices or reduce the quality of goods and services. As a result, they reduce profitability in an industry where companies cannot recover cost increases in their own prices.
The bargaining power of suppliers comprises one of the five forces that determine the intensity of competition in an industry. The others are barriers to entry, industry rivalry, the threat of substitutes and the bargaining power of buyers.
The following conditions indicate that a supplier group is powerful:
Porter, M. (1998). Competitive Strategy. New York: Free Press. pp. 27-29.