How does increased bargaining power benefit larger firms in the market?

Increased bargaining power benefits larger firms in the market primarily by enabling them to negotiate better terms and conditions with suppliers, particularly when it comes to pricing. When a firm can purchase goods or services in large quantities, they often have the leverage to request discounts on bulk purchases. This advantage occurs because suppliers recognize that larger orders can lead to significant sales and a more stable revenue stream. As a result, suppliers may offer lower prices to secure these large orders, which helps the larger firm reduce its overall costs and enhance its profitability.

By obtaining discounts on bulk purchases, larger firms can pass on some of these savings to consumers, maintain competitive pricing, or reinvest in the business, which can further strengthen their market position. This practice highlights the strategic advantage that larger firms have over smaller ones, who may not have the same level of purchasing power or volume to negotiate favorable terms. Consequently, this increased bargaining power directly correlates with improved financial performance and operational efficiency for larger firms.