M110+11+Session+2+post-class

Competition in the substitute industry causes lower

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Unformatted text preview: d by firms in related industries • Threat of substitutes is “HIGH” if: “HIGH” if – Many firms sell products that perform a similar function – The products from substitute industries are close in product space. – Competition in the substitute industry causes lower prices or product improvements in that industry – Examples: • Sugar vs. artificial sweeteners • Beer vs. Alcoholic Sodas • Metal vs. plastic for manufacturing Industry Structure Industry structure is composed of the basic economic structure is composed of the basic economic conditions in the industry such as: number of firms & industry concentration product differentiation & switching costs scale economies & network externalities price discrimination & observability of prices Part of a good Five Forces analysis is to identify the important elements of industry structure that shape each of the forces th...
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