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When close substitutes are available, customers can easily and quickly forgo buying a company's product by finding other alternatives. This can weaken a company's power which threatens long-term profitability. The risk of substitution can be considered high when: [21] Customers have slight switching costs between two available substitutes.
Availability of substitute goods: The more and closer the substitutes available, the higher the elasticity is likely to be, as people can easily switch from one good to another if an even minor price change is made; [28] [29] [30] There is a strong substitution effect. [31]
Buyers propensity to substitute – how willing the consumer is to use a substitute. Can incorporate both intangible and tangible factors such as brand loyalty and contractual agreements; Perceived level of product differentiation - how unique the product or service is; Ease of substitution; Availability of close substitutes [10]
Few, if any, available substitutes (e.g. precious metals) Essential goods (e.g. petrol) Addictive goods (e.g. alcohol, cigarettes) Bought infrequently or a small percentage of income (e.g. salt) For goods with a high elasticity value, consumers will be more sensitive to price changes.
If there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a "pure monopoly". Sometimes, there are many sellers in an industry or there exist many close substitutes for the goods being produced, but nevertheless, companies retain some market power.
“Tariffs on imported goods provide cover for domestic producers of competing goods and close substitutes to raise their prices,” he said. “In addition to that, retaliation is baked in.
Elasticity of substitution is the ratio of percentage change in capital-labour ratio with the percentage change in Marginal Rate of Technical Substitution. [1] In a competitive market, it measures the percentage change in the two inputs used in response to a percentage change in their prices. [2]
Outbreaks of the highly contagious stomach virus are more than double what they were last year, the Centers for Disease Control and Prevention says