What typically strengthens suppliers’ bargaining power?

Suppliers' bargaining power is generally strengthened when there is a shortage of the inputs required by industry members. When inputs are scarce, suppliers have the leverage to dictate terms, raise prices, and potentially prioritize who receives their products. This scarcity makes it challenging for industry members to find alternative sources or substitutes, thereby increasing the reliance on the limited number of suppliers available. As a result, suppliers can negotiate more favorable terms due to the urgency and necessity of their goods in the production process of industry members.

The context for this is that when suppliers hold significant power, they can influence the overall dynamics of the market, often leading to higher costs for industry players. Conversely, if there were a large number of suppliers or low switching costs, it would dilute the bargaining power of any single supplier, making it easier for industry members to substitute inputs or switch between suppliers. Thus, the conditions that contribute to a shortage of inputs directly correlate with enhanced supplier power within the market.