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Classical economics predicts that rivalry between companies should drive profits to zero. This is partly down to the threat of substitutes. For instance, Tesco has competition from companies like Sainsbury that can provide substitutes for their goods. This drives the prices of groceries down in both companies.

Buyer power also acts to force prices down. If beans are too expensive in Tesco, buyers will exercise their power and move to Sainsbury. Fortunately for Tesco, there are few other large supermarket companies. This means the market is disciplined — the supermarkets have a disciplined approach to price setting. Discipline stops them destroying each other in a profit war.

Supplier power is an important part of the Porters five forces model. Implications for Tesco are many. Supplier power is wielded by suppliers demanding that retailers pay a certain price for their goods. If retailers don't pay the price, they don't get the goods to sell. But large supermarkets, like......

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Approximate Word Count: 650
Approximate Pages: 3 (250 words per double-spaced page)

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