What is bargaining power of suppliers?

• A. Suppliers can capture more value by charging higher prices or tightening terms.
• B. Buyers can demand lower prices.
• C. Regulators set contract terms.
• D. Firms dictate supplier behavior.

Answer: (A)

Bargaining power of suppliers measures how much suppliers can influence the price and terms of the inputs they sell to firms. When suppliers have strong power, they can capture more value for themselves by charging higher prices or tightening the terms of supply, such as longer payment times, stricter quality requirements, or fewer delivery options. This happens when inputs are essential or highly differentiated, there are few substitute inputs, suppliers are concentrated, switching costs for buyers are high, or the supplier could threaten forward integration. The correct statement captures this dynamic by stating that suppliers can capture more value through higher prices or tighter terms. The other ideas describe different forces: buyers’ ability to push prices down, regulators setting contract terms, or a firm dictating supplier behavior, none of which describe the supplier’s leverage in setting terms and prices.