Substitute Goods
Substitutes compete for the same demand: when one becomes more attractive, buyers shift toward it, weakening demand, pricing power, and bargaining power for the other.
More demand for chicken can mean less demand for potatoes. The surprising part is not merely that tastes change; it is that one product’s success can directly make another product less valuable.
E1Demand moves sideways
Substitutes give buyers alternative ways to satisfy a similar want. When one option becomes more attractive, demand does not simply grow—it shifts. That switching leaves the original seller competing for fewer purchases, so the balance of supply-and-demand worsens and the price it can command tends to fall. In this way, price-signals reveal not only scarcity but also changing competition between alternatives.
E1Where it shows up
Chicken gains, potatoes lose
The episode’s chicken-and-potato example isolates the mechanism: stronger demand for one substitute reduces demand for the other. The losing product has less bargaining power precisely because buyers now prefer another route.
E1Competition requires a real switch
This model breaks when buyers do not treat the goods as alternatives. If consuming one encourages consumption of the other, the relationship is closer to complements than substitutes. And when switching is difficult or compatibility is controlled, platform-commoditization shows why pricing power may remain concentrated rather than moving cleanly with demand.
Price against the nearest alternative
Before raising a price or forecasting demand, name the specific product buyers would switch to tomorrow. Track whether that substitute is becoming cheaper, easier, or more desirable; if it is, revise your expected demand and bargaining power before the market does it for you.
Episodes that teach this
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Substitute Goods & Complementary Goods | Interesting Economic Facts
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If demand for chicken increases, demand for potato goes down; one substitute doing better means you do worse and the price you can command falls.