The firms in an industry with a high threat from substitutes have less pricing discretion than firms in an industry with few substitutes.

Question

Quizplus · Accepted Answer

When there are many substitutes available for a product, consumers have more options to choose from, which reduces their dependence on a particular product. In such a scenario, firms do not have much pricing power, and they need to keep their prices competitive to retain their customers. On the other hand, in an industry with few substitutes, the firms can charge higher prices as consumers do not have many alternatives. Hence, the statement is true.

The Firms in an Industry with a High Threat from Substitutes