Supplier Power

Supplier Power - ThePowerofSuppliers MANEC387...

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1 Adapted from Baye © 2002 The Power of Suppliers MANEC 387 Economics of Strategy David Benson
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2 Adapted from Baye © 2002 The Structure of Industries Competitive Rivalry Threat of new Entrants Bargaining Power of Customers Threat of Substitutes Bargaining Power of Suppliers From M. Porter, 1979, “How Competitive Forces Shape Strategy”
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3 Adapted from Baye © 2002 Market Supply Curve The supply curve shows the amount of a  good that will be produced at alternative  prices. Law of Supply   The supply curve is upward sloping Price Quantity S 0
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4 Adapted from Baye © 2002 What Shifts Supply? Input prices Technology or government regulations Number of firms Substitutes in production Taxes Producer expectations
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5 Adapted from Baye © 2002 The Supply Function An equation representing the supply curve: Q x = f(P ,   P ,W, H,) Q x = quantity supplied of good X.  P = price of good X. P = price of a related good  W = price of inputs (e.g., wages) H = other variable affecting supply
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6 Adapted from Baye © 2002 Change in Quantity Supplied Price Quantity S 0 20 10 B A 5 10 A to B : Increase in quantity supplied
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7 Adapted from Baye © 2002 Price Quantity S 0 S 1 8 5 7 S 0 to S 1 : Increase in supply Change in Supply 6
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8 Adapted from Baye © 2002 Producer Surplus The amount producers receive in excess of the  amount necessary to induce them to produce the  good. Price Quantity S 0 Producer Surplus Q * P *
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9 Adapted from Baye © 2002 Market Equilibrium Balancing supply and  demand Q x = Q x d   Steady-state
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10 Finding the Market Equilibrium  Assume  Q = 10 – 2P And  Q s  = 2 + 2P What is the market clearing price?  What  is demand at that price?
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11 Finding the Market Equilibrium  Assume  Q = 10 – 2P And  Q s  = 2 + 2P Now, what if the government imposes a  ceiling of $1.50 – what will the size of  the shortage be?
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12 Adapted from Baye © 2002 Price Quantity S D 5 6 12 Shortage 12 - 6 = 6 6 If price is too low… 7
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Supplier Power - ThePowerofSuppliers MANEC387...

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