Canadian Securities Course (CSC) Level 2 Practice Exam

Which of the listed forces describes the level of pressure for lower prices and influence on product choice by buyers?

1. Bargaining power of buyers

2. Threat of new entry

3. Threat of substitute

4. Competitive Rivalry

The correct answer is: Bargaining power of buyers

The choice relating to the bargaining power of buyers accurately captures the influence that buyers have on pricing and product selection. When buyers have strong bargaining power, they can demand lower prices and influence the features or quality of products offered in the marketplace. This power often arises from factors such as the availability of alternative products, the number of buyers in the market, and the importance of each buyer to the seller, which collectively determine how much leverage consumers have over suppliers. This dynamic is crucial for businesses, as it can lead to reduced profit margins if they succumb to pressures from buyers demanding lower prices or higher quality in their purchases. Understanding this interaction allows businesses to strategize effectively in order to maintain competitiveness in the market. In contrast, the other options relate to different competitive forces: the threat of new entrants pertains to the potential for new competitors to enter an industry, the threat of substitutes concerns the availability of alternative products that could fulfill the same consumer need, and competitive rivalry highlights the intensity of competition among existing firms. Each of these factors plays a role in shaping market dynamics, but none specifically target the influence of buyers on prices and product choice to the extent that bargaining power does.