How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the:
A)business may gain customers from the substitute market, adding to its profits.
B)business may reduce its costs by substituting one input for another input.
C)business may lose customers to the substitute good's market unless it lowers price.
D)addition of new substitutes will raise the level of customer satisfaction, allowing higher prices to be charged.

Question

Quizplus · Accepted Answer

The threat of potential substitutes means that customers have other options available to them besides the business's product or service. If the substitute becomes available, customers may switch to it unless the business lowers its price or offers a product that is more competitive. This reduces the market power of the business, meaning they have less control over the prices they can charge and the number of customers they can retain.

How Does the Threat of Potential Substitutes Lessen the Market