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Captive Suppliers? What Low Supplier Prices Really Mean in Global Supply Chains

New research on India’s garment sector shows that low supplier prices stem from two distinct buyer‑power mechanisms: insurance‑based agreements that create surplus and partial vertical integration that can capture surplus. By analysing 35,000 fabric purchases worth about $180 million, the study finds that discounts to regular suppliers are fully explained by insurance value, while integration mainly reduces reliance on higher‑priced spot suppliers. Small suppliers, however, still experience discounts up to 6.7% of spot prices, reflecting genuine surplus capture. The findings suggest that policy should target profit‑smoothing tools rather than merely increasing buyer competition.