What is bargaining power?

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Bargaining power is among several economic concepts developed to help people understand the various factors that influence how deals are made and businesses succeed. The ability of one party to affect the other is measured by bargaining power. It’s an important thing in negotiations as parties with much more bargaining power can use their situations to get more favorable agreements with others.

Every party to a contract has its bargaining power, no matter how small or big. Bargaining power is a major economic concept that evaluates a party’s power to influence another during a negotiation. From the range of options available to the value of the agreement, a variety of factors can influence how much bargaining power an individual or organization has. Bargaining power is closely linked to Porter’s Five Forces analysis and is particularly relevant in sales-related industries.

There are indeed a lot of factors that impact or define how much bargaining power each party has. One of them is having alternatives. A party’s bargaining power increases if they don’t need to negotiate with another party since they have other options. If a party has no other options, it has little bargaining power because the other parties can turn around and walk away from the agreement, putting them in a disadvantageous position.

Furthermore, lack of importance or necessity can also impact one’s bargaining power. If one of the parties in a discussion has the ability to walk away from an agreement without facing any consequences, either because the deal isn’t necessary or important, they have much more bargaining power. This is because, once again, it indirectly affects another party’s business, forcing them to give a better deal.

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Pieter Borremans
By Pieter Borremans

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