Quasi-monopoly in purchasing? Negotiating strongly despite single sourcing – real cases, real results from industry
- Erik Esly
- 2 days ago
- 8 min read
Introduction
1.1 Problem definition and context
How much bargaining power does the purchasing department have if the OEM suddenly threatens not to provide service or deliver equipment in an emergency?
For me, this question was not a theoretical simulation exercise, but part of my everyday professional life in the chemical industry. Single-source setups, virtually no real price transparency, and suppliers who knew exactly how dependent we were on their equipment and spare parts.
In such situations, systematic cost modeling and design-to-cost approaches can help to create transparency, at least at the cost structure level—even if list prices and discounts are hardly comparable at first glance.
A market with only a few relevant suppliers feels like a monopoly for purchasing—especially when it comes to production-critical materials, spare parts, and services.
Excessive price increase demands, one-sided contract terms, and security or compliance arguments designed to nip any alternatives in the bud are unfortunately still a reality in many cases.
When working with companies, we repeatedly see suppliers who appear to hold all the cards: technological advantage, regulatory hurdles, decades of installation experience with customers.
It is precisely in such situations that I have learned that there are still levers to be found—not always in the price itself, but, for example, in risk distribution, availability, service level, total cost of ownership, and in the design of the entire "partnership."
1.2 Objective and structure of the article
In this article, I draw on my personal experiences from international projects with the aim of highlighting specific perspectives and levers that purchasing organizations can use to achieve robust, positive results, even when dealing with (quasi-)monopolists.
1.2.1 What constitutes quasi-monopolies and single sourcing in practice
In theory, a monopoly is clearly defined—one supplier, no real competition.
In practice, purchasing departments encounter quasi-monopolies and single-source situations much more frequently: formally, there are alternatives, but in reality, switching is often extremely time-consuming, expensive, or virtually impossible to implement at short notice.
How do such constellations come about? Typical examples include unique technological features, IP-protected solutions, high certification and qualification costs, or an installation base that has grown over many years, integrating the supplier deeply into the customer's processes and production.
Added to this are self-imposed monopoly situations: a low level of supplier-independent specifications, specific "special solutions" that are constantly repeated, a lack of standardization, or a historically grown "supplier is set" mindset in the specialist departments.
During my time in the process and plant industry, we had exactly this situation: on paper, there were several suppliers, but in reality, only the original OEM was able to meet our specific safety and quality requirements without major modifications.
Formally, therefore, competition existed, but in reality it was a single-source situation with high opportunity costs.
At the relationship level, quasi-monopolies often manifest themselves through a recurring pattern: self-confident to arrogant negotiation tactics, "take it or leave it" conditions, little willingness to compromise, and the constant elephant in the room – "in the end, you'll have to buy from us anyway."
It is not uncommon in such situations to see service and quality performance being neglected—simply because there is no real pressure from the threat of substitution. This is often quickly compounded by a lack of enthusiasm for the continuous improvement of the products on offer.
It is therefore crucial for purchasing professionals to first diagnose these constellations objectively:
Is it a genuine market monopoly, a functional quasi-monopoly, or a self-made single-source scenario that has arisen as a result of specifications, processes, and history? The dependency risk should also be explicitly assessed—including scenarios such as OEM insolvency, prolonged production downtime, or geopolitical restrictions that could jeopardize delivery capability and service access.
This clarity is the basis for consciously moving out of "crisis mode" and into a strategic approach to dependency in the next step.
2. Practical case study: Strategy change, crisis management, and solution finding with a long-standing OEM
One particularly instructive case that I remember was working with an OEM with whom we had enjoyed a close partnership for decades, supplying special production equipment and related maintenance services.
The supplier provided both the machines and maintenance services and original spare parts, and was therefore deeply embedded in the critical infrastructure—a classic single-source setup with a high degree of technical dependency.
2.1 Initial situation: partnership, dissatisfaction, and initial countermeasures
This partnership functioned stably for many years until, above all, service prices gradually moved away from a market-driven level.
At this point, we had already clearly communicated to the supplier that we were dissatisfied with the price development and lack of competitiveness—and had launched an internal project to qualify third-party suppliers if necessary.
In order to remain competitive, third-party suppliers were identified and gradually qualified to take over maintenance and, in some cases, spare parts supply—a deliberate step to reduce costs and dependencies.
Together with colleagues from engineering, production, R&D, and finance, I invested a lot of time in this qualification process at the time: technical approvals at suppliers, training courses, test cases, and clear governance regarding which tasks third-party providers are allowed to take on and where OEM expertise remains essential.
On paper, it remained the main OEM supplier, but in practice, a cautious diversification began—a classic attempt to gradually weaken a quasi-monopoly.
2.2 Unexpected change in strategy at the OEM and increasing pressure
The OEM noticed the declining service volume at some point, but did not comment on it openly at first.
After some time, there was an abrupt change in strategy: the supplier demanded that services for new and existing machines be purchased exclusively through them—otherwise, they would not guarantee troubleshooting in emergencies or the supply of spare parts if components were purchased from third-party suppliers.
During the subsequent crisis negotiations, intensive questioning revealed that a change in management and a new business strategy were behind this: the focus was now on high-margin customers and emerging markets such as clean energy, while traditional industrial customers were increasingly seen as a necessary base with high volume but lower margins.
However, this new target was not communicated early on or transparently—the pressure to perform was more of a late reaction to poor business results with us as existing customers.
2.3 Crisis management: Present a united front, clarify the rules of the game
The OEM's actions led to several crisis meetings at management level.
During these discussions, we clearly and unequivocally stated that unilateral service commitment and the implicit threat of not providing support in an emergency were unacceptable to us—both economically and from the perspective of operational security and governance.
At that time, we did three things simultaneously:
Price benchmark: Hourly rates and spare parts conditions of the OEM versus third-party suppliers and other OEMs.
Risk analysis and scenario models: What consequences do the OEM's demands have for plant availability, compliance, and delivery capability vs. the use of third-party suppliers in the face of continued pressure from the OEM? We also explicitly considered scenarios such as a longer-term supplier failure or possible OEM insolvency in order to derive options for action and contingency plans.
Unified approach: We brought the weight of the entire company to bear in the negotiations: Purchasing, technology, management, and local units presented a united front and took a common line.
This combination of figures, risk arguments, and a united front has significantly shifted the starting position in negotiations—away from "customer begging for service" to a dialogue on equal terms.
2.4 Finding solutions: volume bundling, term, and balanced partnership
In the end, there was no "victory" for either side, but rather a workable compromise.
The OEM finally backed down from its maximum demand and accepted that certain service packages would continue to be provided by qualified third-party providers.
could be achieved.
At the same time, it was clear that the partnership would only remain stable if the supplier also saw economic prospects.
Therefore, two elements were combined:
Volume bundling: Instead of individual, small-scale orders, a substantial service volume was bundled—across locations and time periods.
Longer term: What was originally intended to be a short-term deal turned into a five-year contract with clearly defined terms, price escalation mechanisms, and service levels.
For us, this meant price stability and better terms for several years, without completely giving up the option of third-party providers.
For the OEM, this resulted in predictable capacity utilization and an attractive, concentrated service volume—a much more solid foundation for a professional business relationship than the previous escalation logic.
3. Five practical levers for negotiating with quasi-monopolists
From this and other cases, five levers can be derived for effectively negotiating with quasi-monopolists and single-source constellations.
Lever 1: Demystifying monopoly status – facts instead of gut feelings
The first step is to take a sober look at the situation: Is there really no alternative to this supplier—or is it just difficult to find a replacement at short notice?
This includes benchmarks with other OEMs or third-party providers, TCO analyses over several years, and the evaluation of factors such as energy efficiency, failure risks, and follow-up costs of existing solutions. This is supplemented by consistent cost modeling approaches in which materials, manufacturing, logistics, and typical margins are derived in a structured manner—often in collaboration with engineering and controlling. On this basis, target prices and lines of argumentation can be developed that go well beyond "discount demands."
In a similar project, I set up a benchmark for six comparable manufacturers; it became clear that the energy efficiency of some existing machines was rather low—with clearly quantifiable additional costs over the planned remaining service life.
This transparency made it possible to demand compensation in the service negotiations: better spare parts prices, additional discounts, or a contribution from the OEM toward the additional costs resulting from the lower efficiency.
Lever 2: Expand the playing field – don't negotiate immediately and only negotiate prices
In monopoly situations, simply trying to push down the price for the service technician or spare part is often the weakest lever.
Instead, it is worth expanding the playing field: contract terms, volume bundling, service levels, response times, training, spare parts packages, warranties, or risk-sharing models offer good opportunities.
In the situation described, we used precisely this leverage: instead of just discussing individual daily rates or spare parts discounts, we ended up with a five-year deal with bundled volume, clear service indicators, and defined price escalations.
This resulted in a package with a higher overall value for both sides—and thus more room for negotiation than a pure focus on price would ever have allowed.
Lever 3: Mobilize corporate influence – Purchasing & Business together
Negotiating with a monopolist is not a solo discipline for purchasing, but a team task involving the most important stakeholders.
The more apparent it becomes that engineering, operations, management, and possibly also sales are behind the negotiating position, the more difficult it is for the supplier to play individuals off against each other or rely on informal channels.
In practice, it was particularly clear to me how much the situation changes when the company presents a united front—this sent a clear signal to the supplier.
This unity creates clarity and respect—and usually changes the dynamics of the conversation more than any single figure in the negotiation document.
Lever 4: Build networks within the supplier—don't just talk to the KAM
Successful negotiations with quasi-monopolists depend heavily on the quality of the relationships on both sides.
It is rarely sufficient to speak only with the key account manager or sales manager; contacts with company management, engineering, service management, and regional profit & loss managers are also crucial.
In projects in Russia and the Middle East in particular, I have experienced how valuable a broad network of suppliers is—from local service managers to engineering to regional management.
You gain a better understanding of internal constraints and priorities, enabling you to argue your case in a more targeted manner.
Lever 5: Building long-term alternatives and resilience
Perhaps the most important lever is the least spectacular one: systematically preparing alternatives and actively managing procurement risks.
This includes supplier scouting, third-party qualification, specification standardization, simulation of plant and site closures, and the development of contingency plans for critical spare parts supply and services.
Looking back, it was precisely these seemingly unspectacular steps that enabled us to introduce multi-sourcing in the first place and remain capable of acting in crisis situations instead of falling back into unilateral dependency.
4. Takeaways
Since purchasing in day-to-day business is often tied up in operational "firefighting," clearly reserved, strategic time slots are needed for these issues—otherwise, the company will continue to revolve around the same patterns of dependency.
Three key takeaways:
First, accurately diagnose quasi-monopolies
Not every single-source situation is a genuine monopoly. Those who understand the technical, commercial, and organizational causes of dependency can make targeted adjustments rather than merely "negotiating" prices.
Consistently use crises to bring about a change in strategy
Price shocks or impending service restrictions are not only a risk, but also a lever: for better governance, clear escalation logic, volume bundling, and a playing field that encompasses more than daily rates and discount scales.
Systematically prepare practical measures – don't wait until the situation escalates
Benchmarks, TCO analyses, qualification of alternatives, internal alliances, and networks among suppliers are not "nice to have" topics, but rather prerequisites for being able to negotiate with (quasi-)monopolists on an equal footing.
Comments