Global Journal of Management and Business Research, B: Economics and Commerce, Volume 22 Issue 4

d) The Threat of Substitutes Substitutes are detrimental to the long-run profitability of an industry. Porter (1980) posited that substitutes constrain the profit potential of an industry by instituting an upper limit on the prices organizations in the industry can put in place. The greater the attractiveness of the price-performance tradeoff proffered by substitutes, the stiffer the lid on the profits of the industry (Porter, 1980). Several other studies substantiate Porter’s overall postulations about the threat of substitutes. Ganitiya (2013) observed that the growth in the volume of production of cassava and corn as substitutes for rice in Indonesia may affect the quantity of rice imported. Forman, Ghose, & Goldfarb(2009)demonstrated that the parameters in prevailing theoretical paradigms of channel substitution including cost of offline transportation, cost of online disutility, and prices of products, available offline and online, interrelate to govern consumers’ preference for channels. On the basis of empirical observation, Forman, Ghose, & Goldfarb (2009) investigated the tradeoff between the advantages of purchasing online and the advantages of purchasing in a local retail outlet and demonstrated that when a retail store commences operation locally, consumers replace online buying with offline purchasing, even when they controlled for product- specific choices by geographic location. They further demonstrated that the entry of offline retail stores diminishes consumers' sensitivity to price discounts offered by online stores. Lipatov, Neven, & Siotis (2021) observed that in a situation where by organizations execute competition on the basis of quality-enhancing promotion and prices in markets for differentiated goods, the entry or emergence of a closely perfect substitute to any of such goods, for instance, a generic variety of a pharmaceutical product, deepens competition on the basis of price but relaxes rivalry on the basis of product promotion. Substitutes for a product, if currently absent, will definitely evolve from technological changes. Goldberg (1970) posited that, in the long run, technological transformations will generate products that constitute decent substitutes for a specified product in several of its markets. Products that are strategic substitutes can have ripple effects on competitors’ actions in multimarket oligopolies. Bulow, Geanakoplos & Klemperer (1985) demonstrated that when competitors products are strategic substitutes, and they compete in multimarket oligopoly, a firm’s action in one market can transform competitor’s strategies in another market by impacting its marginal costs in that other competitive market. e) Industry Rivalry Porter (1980) posited that rivalry among prevailing competitors takes the conversant shape of competing for position by applying marketing strategies such as a price war, advertising skirmishes, the introduction of new products, and improved customer services or guarantees. Rivalry happens for the reason that one or more competitors either sense pressure or perceive the prospect of enhancing its competitive position. Porter (1980) went further to elucidate the conditions necessary and sufficient for intense rivalry. He posited that when there are numerous players in an industry, the odds of having mavericks that will ignite rivalry is great, given that some firms may have confidence in their ability to engender moves devoid of being observed. Even if there are relatively few firms, if they possess approximately the same magnitude of resources for a continuous and robust retaliation, they may become susceptible to taking on each other. On the other hand, when an industry is associated with a high degree of industry concentration or is dominated by a single or a few firms, the equilibrium of relative power will be sustained for a more extended period and would also be visible to every participant in the industry. Porter (1980) asserted that there exists additional factors that could provide fertile grounds for intensive industry rivalry including, slow industry growth (by constituting a destabilizing power for competition), high fixed costs (by creating sturdy problems for all firms to plug capacity, frequently leading to quickly rising price cuts) and whether the industry product is viewed as a commodity or a differentiated product or otherwise. A plethora of scholarly works supports the expositions of Porter (1980) with regard to industry rivalry. Ferrier, Smith & Grimm (2017) showed that industry leaders would be more disposed to encounter erosion of their market share and/or deposition of their industry position relative to industry challengers in situations where they exhibit less aggression in competition, undertake more manageable range of actions, and execute competitive activities in a slower fashion. Mas ‐ Ruiz & Ruiz ‐ Moreno (2011) examined rivalry at the level of strategic groups within the Spanish banking industry and demonstrated that amplified rivalry and diminished performance characterized organizations fitting a strategic group that encompasses smaller organizations. Industry rivalry has consequential implications for industry profitability. Cool, Röller, & Leleux (1999) showed that, during the 1960s, competition among the firms studied did not immensely impact the profitability of firms, nevertheless, in the course of the 1970s, rivalry among incumbents posed a progressively detrimental effect on firms’ profitability. Cool& Dierickx (1993) demonstrated that an examination of the United States pharmaceutic industry in the course of the period 1963 to 1982 showed that a considerable decline in industry profitability is sturdily related to growing competition. They further demonstrated that snowballing rivalry is connected with variations in strategic group structure The Determinants of the Attractiveness of an Industry: An Extension of The Porter’s Five-Forces Framework 87 Global Journal of Management and Business Research Volume XXII Issue IV Version I Year 2022 ( ) B © 2022 Global Journals