Course 201: Understanding a Business
Substitutes
In this course
1 Introduction
2 Barriers to Entry
3 Price Elasticity
4 Substitutes
5 Capital Intensity
6 Market Penetration
7 Regulation

If exact substitutes for a firm's goods are readily available--as they are in commodity businesses such as sugar, paper, and online booksellers--a company will have no pricing power. Price elasticity is high and in some cases could even approach infinity (a price hike wipes out all a company's sales). Starbucks has close substitutes, but none close enough to prevent it from getting that extra dime from many pockets. Plus, the company is having success branding its products: Lots of people specifically want Starbucks-brand coffee.

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