The Monopoly Playbook: The Nine Percent and the Two Percent

Here is a question that takes about fifteen seconds to ask and which a monopoly supplier cannot answer well.

Look at the increase you have just been sent. Then check whether the same percentage has been applied to the lines in that category where you have an approved alternative.

It almost never has.

What the differential actually admits

Suppose they want nine percent on the lines where you have no alternative and two percent on the lines where you do.

Same supplier. Same plant. Same quarter. Same input costs. Same labour, same energy, same freight, same raw material index.

There is no version of a cost-driven increase that applies unevenly across products made in the same factory from the same inputs in the same period. So the nine is not a cost recovery. If it were, it would apply to both.

It is a price for your lack of choice, and once that is said out loud in a meeting it cannot be unsaid.

Why the differential exists

Any supplier of scale segments its customer base by price elasticity, and elasticity is a polite word for captivity. The segmentation typically has three or four tiers, and it usually runs something like this: competitive accounts, where alternatives exist and the customer uses them, priced at or below inflation with discount available. Defended accounts, inflation plus one to three. Captive accounts, inflation plus five to twelve. And legacy captive, priced at whatever the traffic will bear, tested annually.

Read that third tier again, because that is where you are, and notice what it means. The increase you have been asked for was not calculated from your costs, your relationship, or even their costs. It was allocated to you, centrally, because their model says you cannot leave.

And then notice where the money goes. A supplier with a blended margin target has to make that target across the whole book. In the competitive tier they are discounting to hold volume, because there the customer has a choice. The shortfall comes from the tier where the customer does not.

So you are not paying for your own supply. You are funding their price war in the markets where they are contested. And in a meaningful number of cases the customers receiving that discount are your own competitors, buying a different product from the same supplier.

How to test it before you assert it

Do not walk into a room and accuse anybody of cross-subsidy. Test it first.

Compare their published gross margin against your price trajectory. If group margin has been flat for four years while your price rose at nine percent a year, the increase is not recovering a cost. It is redistributing one.

Look at their behaviour in contested segments. Distributor pricing, published list movements, trade press, and what your competitors will say about what they pay. Aggressive pricing in one segment alongside aggressive increases in yours is the pattern.

And then just ask the obvious question, which almost nobody asks.

The words

“Help me with something. You are asking for nine percent on the lines where I have no alternative, and two percent on the lines where I do. Same supplier, same factory, same period, same input costs. So the nine is not a cost recovery, because if it were, it would apply to both. It is a price for my lack of choice. I would just like us both to be clear about what is being charged for.”

Then stop talking.

One of three things happens. They concede the differential and offer to equalise downward on the captive lines, which is the outcome you wanted. They claim the contested lines were already correctly priced and the captive ones historically under-priced, which is an argument you can ask them to evidence and they cannot. Or they go quiet and take it upstairs.

None of those is a bad outcome, and you risked nothing to get there.

Why this question in particular

Because it requires no negotiating strength whatsoever.

You do not need an alternative supplier. You do not need a credible walk-away. You do not need a mandate or a benchmark or a should-cost model. You need to have noticed something in their own pricing that they cannot explain, and to say it calmly.

That is the rarest kind of move available to a captive buyer, and most of them never make it, because they accept the frame they were handed: one increase, one percentage, one category.