Page 143 of CFA’s 5th book (Equity and Fixed Income). “Buyer power - If buyers can integrate backwards, this increases their bargaining power because they would cut out the supplier if they choose to integrate” Just want some clarification of this point. What is implied here from ‘integrate?’ Thanks, Ali
Integrate means “unite”, “become one with”. CP
If the buyer decides to integrate backward implies that instead of buying the raw materials from suppliers, the buyer decides ( assuming for some reason it has the ability to produce raw material…be it by contract or capital power, cheap raw material, has the expertise, outsource…bla bla) to produce in-house. For example, consider the carbon fiber industry. Say you produce carbon fiber but buy the raw material - precursor - from XYand Z. You the buyer will have more bargaining power when - there are numerous supplier…so you can play against each other - you have enough capital to produce precursor in-house - you are the only buyer of precursor / producer of carbon fiber. So if suppliers dont listen to you they have nobody to sell their product. i hope this helps…!!
vertical integration.
This is exactly what I was thinking. Thanks for the clarification and help everyone 