When there is no market
Identifying situations where a specific group of enterprises are so closely linked in a supply chain that the production volumes of the specific suppliers can be shown to fluctuate with the demand of the specific customers.
This situation may for example occur when:
- Products do not store or transport easily, or have a low price compared to their weight, so that transport costs prohibit all other than the local producers. Examples are thermal heat, chlorine gas, and straw for heat and power production, where only the farmers closest to the power plant will supply the straw. Other examples of this can be found in the forestry sector and the building- and glass-industries.
- Two or more companies are tied together by tradition, or when a supplier has developed its product to meet specific demands of the customer. An example is an aluminium industry that specifically co-locates with a specific electricity source.
- The choice of supplier is not subject to normal market conditions., e.g. in a market with only one supplier of the specific product (a monopoly), or if patents and product standards limit market entry of new suppliers. However, such situations are becoming more seldom as even the so-called natural monopolies, such as the railroads, telephone and electricity markets, which were long divided into regional monopolies, are now being opened up to competition.
In such situations, the marginal suppliers are identified directly, without the need to investigate the more general market trends.