Distribution of Power in Buyer-Supplier Relationships

As it has become obvious above, buyers have various options for sourcing parts from supplying firms. In order to find an appropriate solution, Cox (2004) emphasizes the focus on power and leverage dimensions. The combination allows for four possible power combinations (Fig. 5.2)  

Buyer dominance is given if the market accounts for fewer buyers than suppliers. The supplier s revenues are considerably dependent on the purchasing of the buyer. The suppher normally offers standardized commodity items, which makes switching easy for the buyer, but not for the suppher. Moreover, the supplier does not have any information advantages over the buyer. 

The opposite is the case if supplier dominance is prevalent. Here, a great number of buyers are purchasing from a small number of supphers. Therefore, the dependency is also reversed the buyer needs the suppher s part, which is relatively unique. In addition, costs for switching are now higher for the buyer than for the supplier. This scenario is completed by a signihcant information advantage of the supplier over the buyer. 

Finally, independence is presented as a possibility of power distribution in buyer-supplier relationships. This is characterized by an abundant number of firms from both sides, exchanging standard commodity products. As the name suggests, none of the parties is dependent on the other, nor are switching costs considerable. Furthermore, there is effectively no information advantage. 

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