In Porter's Five Forces model, do 'Substitutes' primarily affect industry profitability by encouraging reduced prices in certain commodities? True or False.
Understand the Problem
This question is testing your understanding of Porter's Five Forces model, specifically how the threat of substitutes impacts industry profitability. Substitutes limit the price that firms can charge, thus affecting profitability.
Answer
True
True. The presence of substitutes in Porter's Five Forces model does affect industry profitability by pressuring businesses to lower prices.
Answer for screen readers
True. The presence of substitutes in Porter's Five Forces model does affect industry profitability by pressuring businesses to lower prices.
More Information
Porter's Five Forces is a business analysis model that determines the attractiveness of an industry. Substitutes are other products that can satisfy the same consumer need.
Tips
Students may get this confused with the 'Threat of New Entrants' force which also affects prices.
Sources
- Porter's Five Forces - QuickMBA - quickmba.com
- Threat of Substitutes (one of Porter's Five Forces) - The Strategic CFO - strategiccfo.com
- How to understand industry profitability with Porter's five forces - albertocarniel.com
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