How Differentiation of a Supplied Component Impacts Power Dynamics

What happens when the supplied component is differentiated?

Supplier power grows

Supplier power shrinks

Buyer power grows

Buyer power shrinks

Answer:

Differentiation of a supplied component can either increase supplier power if supply decreases (shifts the supply curve to the left), or increase buyer power if supply increases (shifts the supply curve to the right).

When the supplied component is differentiated, it means there has been a change in the conditions affecting supply, such as technology or production costs, resulting in a shift of the supply curve.

If supply increases, due to a factor like a newly invented machine that cuts production time in half, the supply curve shifts to the right, from S0 to S2. This would typically decrease supplier power because there is more of the product available, thus increasing buyer power.

Conversely, if the supply decreases because of an increase in the cost of inputs, the supply curve shifts to the left, from S0 to S1, which would typically increase supplier power and shrink buyer power. This is because there is less of the product available, making it potentially more valuable and allowing suppliers to have more control over prices.