What we are witnessing this year with Merc dominating is mostly tire related and not engine related. There are quite a few teams with Mercedes engines yet none come close. Engine arrangement doesn't give 1-3s/lap.
Pirelli brought harder tires for this season in order to prevent a situation where the rears would be destroyed by the extra turbo torque which would be a fiasco. The tires were much harder in fact, which combined with the lack of downforce, disallows most cars to even get the tires in their operating window. Thus most cars are constantly outside the operating window of the tires. Most cars are visibly like driving on ice and are actually degrading their tires simply because they are sliding with no grip. There is a paradox where even the harder tires of the two that teams have to choose, are often chewed more but not due to abrasion, rather from excessive sliding around.
Mercedes has tremendous mechanical grip and what would otherwise be a usual season for them (where they are destroying their tires after a couple of laps) has now turned into a "dream season" because they can operate the very hard tires much closer to their operating window. The fact that they are within the window, allows them to slide less and thus they are producing more abrasion which is related to normal tire use, rather than useless abrasion from sliding while having no grip.
If the tire spectrum suddenly was extended 3-4 clicks toward the softer end, every team would come alive and their cars would perform while the Mercedes would destroy their tires. A zero/hero and hero/zero effect would take place.
A few quotes this year (there are plenty) about tires and how the harder they are, the more they don't work, but keep in mind that the softer end of the spectrum is still too hard, so it's a relative improvement but still not where teams should be working their tires:
Paul Hembery (Pirelli): “The cars are sliding around more and that has a big effect on the tyre. There’s only 5% less energy going into the tyre in the new-look Formula One – but instead of it coming from lateral forces and cornering, some of that energy is now coming from sliding.”
Paul Hembery: “We were slightly surprised by the gap between the hard and the medium, which was one and a half seconds in Malaysia. That is down to decreased downforce levels at the start of the season: the hard tyre is not worked as much as it once was, so it slides more."