CH 3

SooGood Inc. produces a dip that goes extremely well with Crunchy Potato Chips Inc. SooGood Inc., therefore, is a _____ of Crunchy.

complementor

a company is best described as a _____ to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service.

complementor

Which of the following is the best characterization of sociocultural forces?

a society's culture, norms, and values

Competitive industry structure refers to elements and features common to

all industries.

The Beacon is a newspaper that sold print copies of its paper in a medium-sized town in Kansas for more than 100 years. Recently, the Beacon signed a deal with IntelNews Inc. to present the paper digitally to homes and businesses. This example shows

an industry convergence.

How do low interest rates affect a business?

Firms can easily borrow money to finance future growth.

Which of the following is a primary feature of the five forces model?

It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.

Which of the following is most likely an implication of new firms entering an industry?

The incumbent firms will spend more to satisfy their existing customers.

What are network effects?

the positive effect that one user of a product or service has on the value of that product or service for other users

Given the industry structure in the automobile business, entering the auto manufacturing industry doesn't seem advisable. Yet Tesla Motors is joining the fray. Rather than attempting to compete head-on in internal combustion engines, Tesla Motors is entering the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?

Economies of Scale

Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?

In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.

While Burger Cult Inc. operates in a monopolistically competitive industry, Citizen Telecom Inc. operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true?

The threat of new entrants will be higher for Burger Cult Inc. than Citizen Telecom Inc.

Industry convergence is a process whereby

formerly unrelated industries begin to satisfy the same customer need.

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?

if the industry has recently become deregulated

In an industry, the rivalry among existing competitors is high when

incumbent firms are highly committed to the business.

With the emergence of smartphones, users no longer have to carry a separate music player, a video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as?

industry convergence

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate?

legal

Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit?

the steel industry in which the company has obligations like severance pay toward employees

What is most likely to happen when there is too much money in an economy?

there is an increase in prices

Buyers are highly price sensitive when

they earn low profits or are strapped for cash.

The telecom industry in the country of New Taria is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the

threat of new entrants is most likely low.

Why do companies use strategic group models?

to reveal performance differences between clusters of firms in the same industry

The primary objective of Porter's five forces model is to

understand the profit potential of different industries.

When is the rivalry among existing competitors in an industry likely to be more intense?

when firms make strategic commitments to compete in an industry

Which of the following features about a buyer indicates that the buyer has high bargaining power?

when the buyer operates in an industry where products are undifferentiated

Which of the following would most likely not indicate that sellers are a strong competitive force in an industry?

when the buyers' cost of switching to substitutes is low

Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of

cutthroat competition.

Which of the following statements with regard to industry structures is true?

A consolidated industry tends to be more profitable than a fragmented one.

Go West Airlines Inc. follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?

Blue Skies Airlines Inc., which follows a low-cost strategy

Which of the following firms will most likely not be a complementor to a firm that manufactures computers?

a company that creates its own brand of desktops and lap tops

Shield Autos Inc. has newly launched a luxury car into the European market. Which of the following would most likely not be a complement to the car?

a premium car manufactured and sold by Mova Autos Inc., a rival company

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through

backward integration.

In an industry, the threat of entry is high when

capital requirements are low.

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because

entering the aircraft manufacturing industry requires huge capital investments.

A strategic group will typically include

firms within the same industry.

Which of the following is a feature of an oligopolistic industry structure?

high entry barriers

A fragmented industry is made into a consolidated industry through

horizontal mergers and acquisitions.

Which of the following is a macroeconomic factor that can affect a firm's strategy?

level of employment

Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate?

monopolistic competition

An industry has many firms that compete in it. While products between competitors tend to be similar, they are by no means identical. As a consequence, managers selling a product with unique features tend to have some ability to raise prices. This type of industry is an example of

monopolistic competition.

Rhino Pictures Inc. is a large production company that controls a major portion of the movie industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Rhino Pictures Inc. is most likely functioning in a(n) _____ industry.

oligopolistic

Which type of industry structure is often analyzed using game theory?

oligopolistic

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate?

oligopoly

The telecommunication industry of United Canava is primarily dominated by three large firms: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in?

oligopoly

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?

perfect competition

Home Savings, Good Deals, Hank's Store, and King Bargains are all departmental stores that compete for advantage against each other through everyday low-pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together Home Savings, Good Deals, Hank's Store, and King Bargains form a

strategic group.

First Ledger Inc., an auditing company, replaced its existing accounting software with new accounting software from another supplier. Since the new software has different features and abilities, First Ledger Inc. has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents First Ledger Inc.'s

switching cost

Which of the following external forces is a part of a firm's task environment?

the composition of the strategic group to which the firm belongs

Which of the following represents an economic factor in a firm's external general environment?

the stage of the business cycle that the country is in

When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger?

the threat of substitutes

Economies of scale are cost advantages that accrue for firms with

larger output

In the _____ developed by Michael Porter, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

5 forces model

A firm's strategic position is likely to be strong when

the gap between the value the firm's product generates and the cost to produce it is large.

Which of the following best illustrates a firm operating in a monopolistically competitive industry?

An automobile manufacturer uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers.

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE) in 2008?

Any of the five forces on its own, if sufficiently strong, can extract industry profitability.

In 2008, BlackBerry's market cap peaked at $75 billion. By 2015 this valuation had fallen more than 90 percent, to less than $7 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline?

BlackBerry failed to change its device into one that could perform multiple tasks effectively

Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers?

Car manufacturers require large-scale production in order to be cost-competitive.

______ is best described as cooperation by competitors to achieve a strategic objective.

Co-opetition

Which of the following statements about Porter's five forces model is accurate?

Competition must be defined in a broad way to incorporate all of the key factors that influence profit potential.

While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-and-spoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups?

Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines.

In the luxury cruise industry, the small cruise lines Tropics Inc. and Sunset Inc. merged to form TropicalSunset Inc. After the merge, the competition between TropicalSunset Inc. and the two mega cruise lines, Pacifico and West Winds, has increased significantly. Which of the following statements best explains why this happened?

Competitive rivalry is strongest between firms that are within the same strategic group.

Which of the following is an implication of low interest rates?

Consumer demand will increase.

Which of the following statements is true about strategic groups?

Profitability varies between different strategic groups.

Companies in the same strategic group are _____ to each other.

DIRECT COMPEITITORS

Which of the following is a drawback of Porter's five forces model?

Managers cannot determine the changing speed of an industry or the rate of innovation.

How is a firm's task environment different from its general environment?

Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment.

_____ are best described as industry-specific factors that separate one strategic group from another.

Mobility barriers

Which of the following is an accurate statement about near monopolies?

Near monopolies are firms that have accrued significant market power and thereby are changing the industry structure in their favor.

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL framework

In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true?

Samsung's smartphones increase in value when they are preinstalled with Google's Android system.

While industry forces have been favorable for a long time in the U.S. automotive industry, recent dynamics have lowered the profit potential of competing in this industry and thus reduced its attractiveness. The continued success of Tesla Motors in the industry will depend on other firm and industry factors. Which of the following represents one such factor that directly affects Tesla Motors?

Since suppliers of its key sources are few, the bargaining power of suppliers is high.

Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry?

Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry.

In which of the following situations is the power of suppliers high in an industry?

Suppliers' industry is more concentrated than the industry it sells to.

Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services?

The firms can differentiate their product offerings.

Which of the following is an implication of high exit barriers in an industry?

The industry will face excess capacity.

Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines?

The overall industry profitability will increase.

Which of the following statements is not true about the five forces in Porter's competitive analysis model?

The stronger the five forces in an industry, the greater the industry's profit potential.

Earlier, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the Internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information?

The travel industry changed from a consolidated structure to a fragmented one.

What is the rule of thumb behind Porter's five forces model?

The weaker the five forces, the greater the industry's profit potential—making the industry more attractive.

Which of the following is a characteristic of a fragmented industry?

There are many small firms.

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?

Threat of new entrants will be low.

How did Virgin America enter the airline industry despite the industry's notoriously low profitability?

Virgin America offered low-cost service between major metropolitan cities on the American East and West coasts.

Beans Inc. operates in a perfectly competitive agricultural industry. Classica Apparel Inc., in contrast, operates in a monopolistically competitive industry. Keeping this information in mind, which of the following statements is true?

While Classica Apparel Inc. will have the power to set the prices for its products, Beans Inc. will have little or no ability to do so.

Golden Harvest is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Golden Harvest's strategic group?

a premium rooftop restaurant in the same city

A key feature of an oligopoly is that the competing firms

are interdependent.

In the step-by-step process of industry analysis, identifying the underlying drivers of each force is followed by

assessing the overall industry structure.

Which of the following is an example of monopolistic competition?

computer hardware industry

How can a firm change its industry structure from monopolistically competitive or oligopolistic to a near monopoly?

by developing proprietary technology

Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry, while at the same time Samsung and Google are increasingly becoming competitive with one another. This scenario best illustrates the process of

co-opetition

Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure?

competing against each other through price-cutting

Which of the following do the sociocultural forces in a firm's external environment best represent?

the family size of the firm's target market

A new company named Far Reach Inc. entered the radio retail business. In response, two incumbent radio retailers, Smooth Waves and Clear Signal, lowered the cost of their travel alarm radios and long-distance radios. Also, they spent more money to improve these radios. By doing this, Smooth Waves and Clear Signal

decreased industry profit potential.

When applying the five forces model, the first step should ideally be

defining the relevant industry.

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

demographic trends

which of the following is a feature of a monopolistically competitive industry

differentiated products

The final step in industry analysis is to

draw a strategic-group map.

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using _______ to influence the political process.

lobbying forces

Five years ago, Palomino Airline was able to get a strong foothold in the airline industry by hiring a few pilots and crew and renting two airplanes, which flew routes between Denver, Omaha, Pierre, Cheyenne, and Helena. Which of the following summarizes the above factors that enabled Palomino to get started?

low entry barriers

Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n)

monopolistically competitive industry.

Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate?

monopoly

In Rozinia Republic, the federal government owns and manages all the nuclear power plants. This is because the business would not be profitable if there was more than one supplier in the nuclear power industry. Which of the following industry competitive structures does the scenario best illustrate?

natural monopoly

Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls network, his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages. In addition, an existing user who gets a new user to register with Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.?

network effects

Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely

only achieve competitive parity.

In which of the following industry competitive structures do selling firms have the lowest pricing power?

perfect competition

During periods of high industry growth

price competition among firms frequently decreases.

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers.

price cutting

A firm's _____ relates to its ability to create value for customers (V) while containing the cost to do so (C).

strategic position

Which of the following forces was not originally a part of Michael Porter's fives forces model?

strategic role of complements

The relative bargaining power of suppliers is high when

suppliers provide products that are differentiated.

Due to economic regression in United Filipia, the profitability of the large conglomerate Blue Wing Products Inc. (BWP) was poor. An analysis of the company's business showed that the company could become profitable if it divested a few strategic business units under its banner. From which of the following businesses would BWP find it most easy to exit?

the e-commerce retail business where investments on assets are low