Bargaining over Bubbly

Students from my Strategic Management classes (and those taught by my colleague Tom), will be familiar (if not sick of) the champagne example we use to illustrate and explore the Five Forces framework.

We spend quite a bit of time trying to untangle that likely dynamics of the relationship between the numerous (but geographically confined) growers and the champagne houses who transform their grapes into the bubbly bottled stuff.

This recent piece in The Economist sheds some light on the recent state of affairs. Faced with a recent slump in demand for their product, the champagne-makers have been stockpiling output, and are now bargaining fiercely with the growers (seeking effectively a 50% cut in prices in the upcoming round of contract negotiations). Faced with such a situation, growers’ profits can only be hurt (with a commensurate boon for the makers).

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