In the context of consumer surplus and willingness to pay, buyers with strong bargaining power can limit industry profitability by:

• A. negotiating lower prices closer to their willingness to pay
• B. increasing the supply of goods in the market
• C. reducing their own consumer surplus
• D. encouraging firms to raise prices above equilibrium

Answer: (A)

Verified step by step guidance

1. Understand the concept of consumer surplus, which is the difference between what a buyer is willing to pay for a good and the actual price they pay.
2. Recognize that buyers with strong bargaining power can influence the price they pay, often negotiating prices closer to their maximum willingness to pay.
3. Analyze how negotiating lower prices reduces the difference between willingness to pay and actual price, thereby decreasing the producer's revenue and limiting industry profitability.
4. Consider why increasing supply or reducing consumer surplus would not directly limit industry profitability in this context, as these actions affect market dynamics differently.
5. Conclude that the key mechanism by which buyers with strong bargaining power limit industry profitability is by negotiating prices closer to their willingness to pay, reducing firms' profit margins.