Erosion of Bargaining Power for Small Business

Small businesses facing large suppliers or buyers often form associations or buying groups to collectively negotiate in order to improve their bargaining power. While collective negotiation of the price, and terms and conditions of supply by competitors may breach the Trade Practices Act 1974 (Act), the ACCC may authorise such conduct where there are public benefits from the collective negotiations.

However, the effectiveness of collective negotiations to overcome bargaining power asymmetry may depend on the extent to which the group can agree to collectively boycott a supplier or buyer if suitable terms and conditions are not agreed. For example, an association comprising of a large number of small buyers collectively negotiating with one of two large suppliers may refuse (or threaten to refuse) to deal with the supplier (boycott it) if suitable terms and conditions can not be agreed. In these circumstances the group may take the aggregated business to the other large supplier.