Question

1. With single-sourcing, how does the firm protect itself from price gouging? From strikes or interruptions to supply? Please discuss specific ways.

Answer 1

1. With single-sourcing, how does the firm protect itself from price gouging? From strikes or interruptions to supply? Please discuss specific ways.

• If a company helps a supplier reduce its price risks, it can demand some concessions in return and dodge price gouging
• Small companies that don’t order through multiple units can form purchase consortiums with other firms in their industry to protect themselves against the monopoly of the suppliers
• Companies should shift volume away from a powerful supplier, ideally by switching to a substitute or lower-cost product. The mere threat of this can increase the supplier’s openness to agree to company's terms
• Companies should always focus on creating a new supplier to dodge future risks
• Companies should make the supplier dependent on it, so that if suppliers of gouging the price, company can always withdraw its support, which may lead the supplier to perish