What is Supplier-Induced Demand?

Supplier-induced demand is a phenomenon that occurs when a supplier of a good or service encourages or creates additional demand for their product beyond what would naturally exist in the market. This can be done through various means, such as marketing, pricing strategies, or the manipulation of consumer preferences.

Examples of supplier-induced demand include:

• Upselling: Upselling is a technique used by salespeople to encourage customers to purchase additional products or services. For example, a car dealership may try to upsell a customer on a more expensive car or on additional features or warranties.
• Advertising: Advertising can be used to create demand for products or services by promoting the benefits and appeal of the product.
• Expansion of services: Some suppliers may expand their services in order to create additional demand for their products. For example, a doctor may recommend additional tests or procedures that are not medically necessary in order to generate additional revenue.

Supplier-induced demand can have negative consequences for consumers, including higher prices and unnecessary consumption of goods and services. It can also lead to inefficiencies in the market and contribute to the overuse of resources.

Supplier induced demand can also result from asymmetric information in a market. For example, when a dentist prescribes treatments to a patient.