Published by MBA Skool Team, Last Updated: November 17, 2016
What is Countervailing Power?
Countervailing power is the balancing of the power of one group by another group. In marketing terminology, countervailing power refers to the power of the large buyers (trade unions/ stockist etc.) to create competition between its potential suppliers. It is holds true for marketing and political scenarios as well. The term “countervailing power” was coined by American economist John K. Galbraith in his book American Capitalism (1952).
As we know, countervailing power is power of buyers, let us get into details of it. It is the power of buyers to get huge concession from suppliers. It is the power that counters the growing power of the suppliers. In brief, it helps in decreasing monopoly effect.
Ex: Walmart and other retail chains extracting huge discounts from the suppliers/producers. Similarly, the automobile manufactures gets huge discounts in the price of steel from steel producers.
This theory although looks good in real life but is controversial and still not accepted by many marketers and economists. Because countervailing power in long run turns these parties into monopolist. There are various theories that suggest that countervailing power works in real scenario. One of the theory is that suppliers benefits even after giving discounts to large buyers. The reason is that now the supplier/ producer need not have to ship the finished goods to various location rather have to ship to one or two warehouses of large buyers. This reduces the shipping cost and in turn decreases the per unit production cost for the manufacturer.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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