PDSnet Glossary

Term

Categories

Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

Versions

Name	synonyms = 1, variations = 2, abbreviations = 3

Publish: (0 = no, 1 = yes)

Definition

In micro-economics, a product which can be used by a consumer to replace another product. For example, rice can be substituted for maize meal as a carbohydrate or one brand of toothpaste can be substituted for another. The fewer available substitutes there are in a particular market the less elastic the demand for that product becomes and the more pricing power the manufacturer/retailer has. Products with many substitutes tend to be very price-competitive and their demand curve is highly resonsive to small changes in price (i.e. it is very elastic). Companies generally try to differentiate their products from the competition and achieve a degree of brand loyalty so that they can increase their pricing power and generate greater profits.

Edit Glossary Term