Which statement about supplier power in the airline industry is true?

• A. Supplier power is irrelevant to market equilibrium in the airline industry.
• B. Suppliers, such as aircraft manufacturers, have significant bargaining power due to the limited number of producers.
• C. Suppliers in the airline industry have little influence because airlines can easily switch between many aircraft manufacturers.
• D. Supplier power is low because airlines typically produce their own fuel and maintenance services.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of supplier power in microeconomics. Supplier power refers to the ability of suppliers to influence the price and terms of supply in a market. High supplier power means suppliers can demand higher prices or better terms, affecting the market equilibrium.
2. Step 2: Analyze the airline industry context. Identify key suppliers to airlines, such as aircraft manufacturers, fuel providers, and maintenance service companies. Consider how many suppliers exist and how easily airlines can switch between them.
3. Step 3: Evaluate the number of suppliers and switching costs. In the airline industry, there are only a few major aircraft manufacturers (e.g., Boeing and Airbus), which limits competition among suppliers and increases their bargaining power.
4. Step 4: Consider whether airlines can easily switch suppliers or produce inputs themselves. Airlines generally cannot produce their own aircraft or fuel, and switching aircraft manufacturers is costly and infrequent, which strengthens supplier power.
5. Step 5: Conclude which statement is true based on the above analysis. The statement that suppliers like aircraft manufacturers have significant bargaining power due to the limited number of producers aligns with microeconomic principles of supplier power in this industry.