Clarice's factory has invested in expensive equipment to produce a specialized weapon for her government's military. There are no other buyers of this type of weapon, and the equipment is not useful for the production of other goods. Which of the following statements describes Clarice's vulnerability based on the Five Forces framework?
A)Clarice is vulnerable because the number of existing competitors is high.
B)Clarice is vulnerable because barriers to entry into her market are low.
C)Clarice is vulnerable because her customer can choose from many products.
D)Clarice is vulnerable because her customer has market power.

Question

Quizplus · Accepted Answer

Clarice's vulnerability lies in the fact that her customer (the government) has market power. Since there are no other buyers for this specialized weapon, Clarice is dependent on the government's purchases in order to sustain her business. The government can use this market power to negotiate lower prices or choose to buy from other suppliers, putting Clarice at a disadvantage. The other options are not applicable in this scenario as there are no existing competitors and barriers to entry are high due to the specialized equipment required for production. Furthermore, customers cannot choose from many products as this is a specialized weapon with no substitutes.

Clarice's Factory Has Invested in Expensive Equipment to Produce a Specialized