FINE 2000 Lecture Notes - Lecture 18: Vertical Integration, Product Differentiation
Document Summary
Suppliers - make a wide variety of raw materials, labor, and other critical assets available to firms. Suppliers can threaten the performance of firms in an industry by increasing the price of their supplies or reducing the quality of their supplies. Suppliers are a greater threat if the suppliers" industry is dominated by a small number of firms. Indicators of the threat of supplier leverage in an industry: Suppliers" industry is dominated by small number of firms. Suppliers sell unique or highly differentiated products. Forward vertical integration - suppliers cease to be suppliers only and become suppliers and rivals. When an industry has high barriers to entry, suppliers face significant forward integration costs, so it is not as big of a threat then. Firms are not important customers for suppliers. Threat from superior or lower-cost substitute products. Substitutes - meet approximately the same customer needs, but do so in different ways.
