Editing Substitute good (section)

==Market effects==
The Michael Porter invented "Porter's Five Forces" to analyse an industry's attractiveness and likely [[profitability]]. Alongside competitive rivalry, buyer power, supplier power and threat of new entry, Porter identifies the threat of substitution as one of the five important industry forces. The threat of substitution refers to the likelihood of customers finding alternative products to purchase. 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:<ref>{{Cite web|date=2020-02-04|title=Substitute Goods: Meaning, Elasticity, Examples|url=https://penpoin.com/substitute-goods/|access-date=2021-04-28|website=Penpoin.|language=en-US}}</ref>

* Customers have slight switching costs between two available substitutes.
* The quality and performance offered by a close substitute are of a higher standard.
* Customers of a product have low loyalty towards the brand or product, hence being more sensitive to price changes.

Additionally substitute goods have a large impact on markets, consumer and sellers through the following factors:

# Markets characterised by close/perfect substitute goods experience great [[volatility (finance)|volatility]] in prices.<ref name=":1">{{Cite web|title=Substitute Products - Understanding the Impact of Substitute Products|url=https://corporatefinanceinstitute.com/resources/knowledge/economics/substitute-products/|access-date=2020-10-01|website=Corporate Finance Institute|language=en-US}}</ref> This volatility negatively impacts producers' profits, as it is possible to earn higher profits in markets with fewer substitute products. That is, perfect substitute results in profits being driven down to zero as seen in perfectly competitive markets equilibrium.
# As a result of the intense competition caused the availability of substitute goods, low quality products can arise. Since prices are reduced to capture a larger share of the market, firms try to reduce their utilisation of resources which in turn will reduce their costs.<ref name=":1" />
# In a market with close/perfect substitutes, customers have a wide range of products to choose from. As the number of substitutes increase, the probability that every consumer selects what is right for them also increases.<ref name=":1" /> That is, consumers can reach a higher overall utility level from the availability of substitute products.