AGB 301 Chapter 6 notes - Chapter 6 The food system has...

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Chapter 6: The food system has both a horizontal and a vertical dimension. In either dimension, coordination can be at one of two extremes: one company controls all the activities through common ownership – administrative control; or, at the other extreme, control is by the “invisible hand” of the open market. Most situations are between these 2 extremes. Figure 6.1 p135 Power: the ability to influence (or to resist being influenced by) the behavior of another individual or company. Power relationships can be analyzed at an industry level, between companies, and within organizations. Figure 6- 2 page 136 1. Bargaining power of buyers 2. Substitute products 3. Barriers to entry 4. Bargaining powers of suppliers 5. Competition within industry The potential for the exercise of power is greatest when there is: o Little rivalry among existing companies o No threat of new entrants (high barriers to entry) o Low bargaining power of suppliers o Low bargaining power if buyers o No threat of substitute products o Individual Company Power: at the level of an individual company or collective bargaining group, power derives either from having power yourself or from facing a buyer or seller who lacks power. Key variables: Having alternatives Switching costs The financial importance of the deal Financial structure Potential for vertical integration
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