Porter 5: Threat of substitutes

Explain your answer: An industry that manufactures and sells a commodity-like product will face increased competition primarily because of greater: A) bargaining power of buyers. B) threat of substitute products. C) threat of new entrants.

I would guess B. Unless it’s a value added product there’s not going to be any pricing power. A good example would be batteries. WalMart’s number one stocked battery is Rayovac…

i would go for A,

substitute product means that you can change batterie for solar energie.

in a commodity world this is not really true.

but buyers can buy there gaz at BP SHELL or whatever they want since the product is the same for every one so high power on the buyer side…

You can’t use gas as an exanple because gas is a deman inelastic product. The price of oil is primarily dictate by supply not demand.

I would say C because if the demand of a commodity-like product increases then the price of the commodity increases and it becomes very profitable to manufacture and sell. Competitors are going to see that and will enter the market increasing competition and driving the price down

minutia, move on.

i’m with jmachine again. great minds and all… haha.

AF can be like magazines for girls (make them feel ugly). if you’re not careful, you think you haven’t studied well just because some people like to complicate things. my mantra: keep it simple.

The book says that the correct answer is B. I disagree, b/c in any commodity like product, its low switching costs will shit the power to the buyer in the long term.

Rio Tinto may be a super producer of patash, but if the margins are two high, in the long term either new entrants will attack or the buyer will integrate backward, despite the fact that entry barriers might be pretty high.