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There are several concurrent inquiries into supermarkets in Australia, notably C...

May 22, 2024

There are several concurrent inquiries into supermarkets in Australia, notably Coles and Woolworths. See, for example, the ACCC’s ongoing inquiry. Consider one of the supermakets, say Coles, negotiating with two different suppliers of products that it sells: a farmer who grows broccoli; and Arnotts the manufacturer of Tim Tams (amongst other products). analyse how the negotiations (and the outcome) would be different (or the same) for the two negotiations.

Solution

Bargaining Power: The bargaining power of Coles with the farmer who grows broccoli is likely to be higher compared to Arnotts, the manufacturer of Tim Tams. This is because the farmer is a smaller supplier with fewer alternatives, while Arnotts is a large, established brand with significant market power

Price Elasticity: The price elasticity of demand for broccoli is likely to be higher than for Tim Tams. Consumers may be more sensitive to price changes in broccoli, a staple good, compared to Tim Tams, a branded luxury item. This affects how much Coles can negotiate on price

Product Differentiation: Broccoli is a relatively homogeneous product, meaning there is little differentiation between what different farmers produce. Tim Tams, on the other hand, are a unique product with brand loyalty. This means Coles has less leverage in negotiating with Arnotts compared to the farmer

Supply Chain Dependence: Coles may have more alternative sources for broccoli than for Tim Tams. This means that if negotiations with the farmer fail, Coles can more easily find another supplier. This is not as easy with Tim Tams, which are unique to Arnotts

Long-term Relationships: Coles may seek to maintain long-term relationships with both suppliers, but the nature of these relationships will differ. With the farmer, the relationship might focus on consistent supply and fair pricing. With Arnotts, it might involve joint marketing efforts and exclusive deals

Answer

The negotiations between Coles and the farmer who grows broccoli will likely be more favorable to Coles due to higher bargaining power, higher price elasticity of demand for broccoli, and the availability of alternative suppliers. In contrast, negotiations with Arnotts will be more balanced or even in favor of Arnotts due to their strong brand, lower price elasticity of demand for Tim Tams, and the unique nature of their product.

Key Concept

Bargaining Power

Explanation

The bargaining power of a buyer or seller significantly influences the outcome of negotiations. In this case, Coles has more bargaining power over the farmer due to the farmer's smaller size and fewer alternatives, whereas Arnotts' strong brand and unique product give it more leverage in negotiations.