Business Model Innovation: Concepts, Analysis, and Cases by Allan Afuah

Author:Allan Afuah
Language: eng
Format: mobi, epub
ISBN: 9781136656491
Publisher: Taylor and Francis
Published: 2014-03-25T16:00:00+00:00

Size Effects Beyond Economies of Scale

A first-mover that pursues the right strategies and captures as much of the total available market as possible has another advantage beyond economies of scale—size. A large firm buys more from its suppliers than its competitors and, in some cases, can command considerable bargaining power over its suppliers. For example, Wal-Mart’s size gave it a tremendous amount of power over its suppliers in the mid-2000s.2 Power play or none, it is also easier for suppliers to cooperate with larger firms. For example, to have suppliers locate near a firm, the firm needs to buy large enough output from the supplier to make it worth the supplier’s investment in plants, equipment and people to serve a customer at a particular location. A large firm can also afford to undertake more innovation projects since it can spread its risk over more stable and less risky projects.

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