*Relative Bargaining Power in Input and Output MarketsWhile degree on competition in an industry determines whether or not there is potential to earn abnormal profits, the actual profits are influenced by the industry's bargaining power with its suppliers and customers. On the input side there is labor, raw materials and components, and finances. On the output side firm may either sell directly to the final customers, or enter into contract with intermediaries in the distribution chain. There is a competition among all these factors called relative bargaining

*4. Bargaining Power of buyersDepends on:1. Price sensitivity: Buyers are more price sensitive when the products are undifferentiated and switching cost is low.2. Relative bargaining power: In a monopoly market there is low bargaining power of the buyers and in a perfect market there is high bargaining power of the buyers. This in turn, depends on number of buyers relative to number of sellers, as well as the volume per buyer.

*5. Bargaining Power of SuppliersSuppliers bargaining power is the opposite to the bargaining power of the buyers. In a monopolistic and oligopolistic market the supplier or suppliers have strong bargaining power. (Example: Power of Coke-Pepsi on bottlers) On the other hand, in a perfect market they do not have a bargaining power as they have to accept the market price. (Example: can producers lack power). Market of intermediate goods also determines the bargaining power when they are the exclusive suppliers for the next sequence of producers. (IBMs unique position as mainframe suppliers dominates computer leasing business)

*Industry Analysis: Case StudyPersonal Computer IndustryIntroduction: Computer industry introduced in 1981 when IBM announced its PC with Intels microprocessor and Microsofts DOS operating system. With tremendous growth, in 1997 there was 100 million PC installed capacity, 30 million PC overseas sales with 21% annual growth rate. Since then the profitability went down. Despite the spectacular growth in 1998 the industry experienced low profitability. Why?Concentrated market: Top 5 firms sharing 60% so price cut was common. The industry began in 1981 by the IBM with Intel microprocessor and Microsofts DOS operating system. Undifferentiated products: Many firms producing identical products and acute competition experienced price cut.Large scale economies: Components share 60% of the price, so large procurement needed. Low switching cost as different brands use same Intel microprocessor and Microsoft Windows operating systemEasy access to distribution channel Easy entry due to easy availability of spare parts. (Michael Dell started Dell computers with mare assembling at his dormitory room)

*Industry Analysis: Case Study (Contd.)Personal Computer IndustrySubstitute products like Apples Macintosh computers offered competitionPower of suppliers and buyers: Intel (microprocessor) and Microsoft (DOS) hold strong bargaining power as suppliers. From 1983 to 1993 corporate buyers became price sensitive as computer procurement cost was very significant for successes, and once being aware of the technology brand names mattered little to them.Tremendous pressure on firms to spend large sums of money to introduce new products rapidly, maintain high quality, and provide excellent customer support contributed to low profit potentials. Prospective issue: Dominance of Intel and Microsoft in input market is going to continue which indicates little change of the structure of the industry in future as wellLimitation of the analysis: Industry may not have clear boundaries (Shadow zones: workstation, manufacturers abroad, for Dells industry analysis IBM compatible PCs vs. all PCs)