Classroom Companion: Business

Substitutes 
are products that may replace other products which offer the same or an 
equivalent experience. For example, seafood may replace meat as nourishment. In the 
digital economy, substitutes have become a strong market force. Examples of substi-
tutes include mobile phones substituting fixed telephone services, and video streaming 
replacing broadcast services. The most competitive advantage of mobile phone manu-
facturers was originally the design of the radio modules of the phone, and competi-
tion took place between traditional radio manufacturers. However, as the mobile 
phones developed into smartphones (or handheld computers), the competitive advan-
tage changed to the ability to design complex software that supports the new function-
ality, thereby inspiring computer manufacturers to enter the market. The smartphone 
then became a substitute for simple mobile phones produced by a new type of manu-
facturer. Other examples of substitutes in the digital economy are e-books substitut-
ing paper books, MP3 players substituting CDs as a medium for the dissemination of 
music, and streaming services on smartphone replacing the MP3 players.
Later, a sixth force was added to Porter’s model. Different authors attributed 
different interpretations of what this force is (Brandenburger & Nalebuff, 
1995
):
5
Complementors
5
Government
5
The public
In a strategic analysis of the company, it is recommended to consider all three 
alternatives because they will all have an impact on the company’s strategy.
Complementors 
are companies that produce or sell products for which the demand 
is positively correlated to the demand of a given product. These products are called 
complementary products. Complementarity may be either unilateral or bilateral. 
Unilateral complementarity occurs when the product of one company depends on 
the product from the other company but not vice versa. Bilateral complementarity 
means that each product cannot exist without the other product. Examples of com-
plementors and complementary products are shown in 
.
Table 
8.1
.
Governments 
decide rules for competition and oversee that the rules are followed. In 
the telecommunications market, regulations may include license of operation, maxi-
mum and minimum price of services and subscriptions, conditions for lease of net-
work resources, use of the frequency spectrum, conditions for interconnectivity of 
customers in different networks, and number portability. Governments may also 
regulate the business of application service providers, for example, via licensing, taxa-
tion, law regulations, and censorship.