Chapter 3

*d. Substitutability on both the demand side and the supply side, combined with an element of judgment depending on context and purpose

A market's boundaries are defined by: a. The geographies of the markets that are supplied by the incumbents b. The type of product which is sold, and the type of customers willing to pay for the product c. Substitutability on the demand side and substitutability on the supply side d. Substitutability on both the demand side and the supply side, combined with an element of judgment depending on context and purpose

*a. The identification of the drivers of a firm's relative profitability within an industry

An industry "direct modeling of profitability" is defined in the text as: a. The identification of the drivers of a firm's relative profitability within an industry b. The statistical modeling of the profit as determined by several variables, using multiple regression analysis c. The comparative modeling of one industry versus another industry d. Setting up a model of industry profitability from the interaction of the Five Forces

*a. On its own tends to be a poor predictor of future profitability

An industry's current profitability: a. On its own tends to be a poor predictor of future profitability b. Is an excellent predictor of its future profitability c. Explains the past in that industry d. Is determined by the forces of competition and so many other factors that gaining insights into its causes is almost impossible

*a. What do customers want which we could supply and what should the firm do to survive competition?

Analyzing key success factors leads one to ask the following two questions: a. What do customers want which we could supply and what should the firm do to survive competition? b. What do customers want and what type of operational changes should a firm implement to survive competition? c. Which of the five forces of competition most threaten a firm's survival and how could the firm deal with them? d. What should managers do to a information collected from the market and the firm's operational units?

*d. The perceived or real threat for one party to refuse to deal with the other party

Bargaining power rests, ultimately, on: a. The negotiating skills of the buyer versus the seller b. Historic and accidental events c. The respective effectiveness and cohesion of top management teams d. The perceived or real threat for one party to refuse to deal with the other party

*d. Sometimes possible even by small firms, if the mix of drivers for change and existing structure make it susceptible to change

Changing the industry structure is: a. Not really within the power of a single firm b. An endeavor that firms are undertaking on a permanent basis with great success c. A risky strategic move that may backfire, because of retaliation from the industry's incumbents d. Sometimes possible even by small firms, if the mix of drivers for change and existing structure make it susceptible to change

*d. New entrants face the cost and risk of creating large-scale capacity to start with or a severe cost disadvantage if they enter on a smaller scale

Economies of scale are a barrier to entry because: a. New entrants do not know where they are positioned on their learning curve b. New entrants do not know the economies they can generate in the future and therefore cannot precisely determine their selling price c. New entrants face a risk of retaliation from the incumbents which could occur immediately on a large scale and start a price war as a deterrent of their entry d. New entrants face the cost and risk of creating large-scale capacity to start with or a severe cost disadvantage if they enter on a smaller scale

*c. Somewhat flexible in scope depending on what aspect of business you are considering

Market and industry are: a. Very specific economics terms which must be rigidly adhered to b. Are concepts which require careful consideration of their philosophical underpinning to use correctly. c. Somewhat flexible in scope depending on what aspect of business you are considering d. Close concepts where market is identified with broader sectors, while industries refer to specific technologies

*a. To disaggregate return on capital employed into component ratios that point to the main underlying drivers of profitability

One useful way to analyse the drivers of a firm's relative profitability is: a. To disaggregate return on capital employed into component ratios that point to the main underlying drivers of profitability b. To disaggregate assets into component parts that point to the main drivers of profitability c. To undertake a benchmarking study to compare a firm's profitability with that of its rivals d. To conduct a survey of managers to ask what they think are the reasons why their firm is profitable

*a. An illustration of barriers to entry imposed by legal or professional authorities

Regulations in banking, telecommunications, and broadcasting industries are: a. An illustration of barriers to entry imposed by legal or professional authorities b. An illustration of how governments and regulators unfairly protect incumbents from competition c. Constraints on competition that are essential to protect consumers d. Only an illustration of the intervention of the state on business practices

*b. Are simply that; just tools. Their value depends on the skill with which they are deployed.

The analytical tools described in the text: a. Must be used if one is to understand the industry structure *b. Are simply that; just tools. Their value depends on the skill with which they are deployed. c. Should really only be used by academics. d. Both A and C above

*c. Buyer's price sensitivity and the bargaining power of buyers relative to that of sellers

The bargaining power of buyers depends on: a. The buyer's price sensitivity b. The size of buers relative ot that of sellers c. Buyer's price sensitivity and the bargaining power of buyers relative to that of sellers d. The ability of buers ot backward integrate

*d. All of the above

The bargaining power of suppliers is likely to be high: a. When the suppliers' industry is concentrated b. When suppliers are supplying differentiated products c. When "our" (the customer's) industry is relatively fragmented d. All of the above

*a. All of the items below

The relative bargaining power of buyers depends on: a. All of the items below b. The size and concentration of buyers relative to suppliers c. A buyer's access to information about products and costs d. The ability or threat to integrate vertically

*d. A way to enable managers to position the firm where its particular capabilities can be deployed to best advantage

Understanding the competitive forces in an industry is: a. A largely futile exercise for managers b. Is of academic interest, but does not bring any value for strategic management c. A way to enable managers to allocate their resources where competition is the strongest d. A way to enable managers to position the firm where its particular capabilities can be deployed to best advantage

*a. Analogous concepts but, in practice, markets tend to be defined more narrowly than industries

"The market" and "the industry" are: a. Analogous concepts but, in practice, markets tend to be defined more narrowly than industries b. Concepts whose everyday meaning has become divorced from their true economic definitions c. Exactly the same concept, and can be used interchangeably d. Exclusively used in marketing and strategic management respectively

*b. Factors derived from the competitive environment that a firm's must satisfy if it is to succeed.

Key success factors are: a. Factors that lead rivals to undermine a firm's competitive advantage b. Factors derived from the competitive environment that a firm's must satisfy if it is to succeed. c. Factors in the internal environment that determine a firm's ability to survive and prosper d. Factors in the five forces of competition that are critical for a firm's survival and prosperity

*a. Its relationships with customers, competitors and suppliers

The core of a firm's business environment is determined by: a. Its relationships with customers, competitors and suppliers b. Its relationships with customers, competitors, government and suppliers Its relationships with its major stakeholders d. The social and economic sstems withn which the firm must coexist

*d. Answers b and c

The market in which a consumer produce competes is, in reality: a. Precisely defined, with a specific analysis of products, markets, and rivals b. A continuum, with no clearly defined boundar c. The market for all products which consumers may choose to spend their money on, in some sense d. Answers b and c

*d. The price that the customer is willing to pay for a product exceeds the cost of supplying it.

Value is created when: a. The price that the customer is willing to pay for a product exceeds the costs of the material inputs used to produce the product b. The surplus of value is distributed between customers and producers in the industry by the forces of competition c. The value of a product to consumers exceeds the price they paid for it. d. The price that the customer is willing to pay for a product exceeds the cost of supplying it.

*b. They tend to be sufficiently small that a single foirm can establish a dominant position

Firms supplying niche markets are often highly profitable because: a. They tend to supply specialty products for high income consumers b. They tend to be sufficiently small that a single foirm can establish a dominant position c. They tend to be disregarded by major corproations d. Tend to have high entry barriers

*a. Use a framework or a system that allows them to organize information and rank factors

Given the plethora of external influences, understanding the external environment requires managers to: a. Use a framework or a system that allows them to organize information and rank factors b. Monitor their rivals closely to detect signals of change in their strategies c. Use all existing techniques to gather and analyze information d. Work on the matter full-time

*c. It is likely to attract the attention of potential entrants; unless the industry is protected by high barriers ot ewntry, the return on capital will fall

If an industry earns a return on capital in excess of its cost of capital: a. It will soon attracts the attention of competition authorities b. Workers will push for higher pay and benefits causing the level of profitability to fall c. It is likely to attract the attention of potential entrants; unless the industry is protected by high barriers of entry, the return on capital will fall d. The high profits earned will encourage over-investment by firms causing the return on capital to fall.

*c. The existence of many suppliers would drive down prices to the cost of supplying these beverages (with the assumption that no collusion emerges)

In a nightclub, a single supplier of beverages can charge a price that exploits its position and the customers' willingness-to-pay. If many suppliers could offer their products on the same site: a. The suppliers would collude to maintain an artificially high selling price to preserve their return b. The customers would not change their level of consumption, leading to a decrease in the return for all suppliers c. The existence of many suppliers would drive down prices to the cost of supplying these beverages (with the assumption that no collusion emerges) d. The economic rent would significantly increase for all suppliers

*c. Largely a matter of judgment and experience contingent on the purpose of the analysis

In practice, drawing the boundaries of industries and markets is: a. A matter of the personal preference of top managers b. Almost impossible to carry out with rigor because it requires many "rules of thumb" and approximations c. Largely a matter of judgment and experience contingent on the purpose of the analysis d. Critical to the output of the analysis and therefore should only be undertaken with the help of an academic or consultant

*b. A situation of quasi-monopoly; the other situation of near-perfect competition

Industries exhibit strong differences in structure which is reflected in very different competitive outcomes—for example, the US chewing tobacco industry and the Chicago grain market illustrate: a. Commercial activities which are ethically questionable b. A situation of quasi-monopoly; the other situation of near-perfect competition c. The immense profits can be earned in both monopolistic and intensely competitive markets d. Each illustrates, respectively, a situation of low risk and a situation of high risk in terms of business activity fluctuations

*d. Then even so it's entirely possible that some firms are making very good profits

Suppose that an industry's profitability is zero or negative overall: a. Then all firms in the industry are performing badly b. Then no firm in the industry can be performing well c. Then the biggest firm in the industry is performing badly d. Then even so it's entirely possible that some firms are making very good profits

*b. The level of profitability within an industry is determined by the systematic influence of the industry structure which determines the intensity of competition in the industry

The basic premise of industry analysis is that: a. Perfect competition and monopoly are theoretical modls, in practive most industries are oligopolies b. The level of profitability within an industry is determined by the systematic influence of the industry structure which determines the intensity of competition in the industry c. Firm strategies and their intereactions are the key determinnats of the industry envirnbment d. The basic forces of technolog and consumer demand are the fundamental forces that shape industry structure

*d. The value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers

The profits earned by firms iIn an industry, are determined by: a. The overall state of the economy and the intensity of competition within the industry b. Hw much customers value the products supplied by the industry c. The extent to which the industry is protected by barriers to entry d. The value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers

*d. Generally accepted by the corporate, consulting and academic worlds, but as with most business concepts and models, there are always some detractors

The value to managers of understanding key success factors is: a. Self-evident b. Legitimate because it is accepted by the academic world c. In question because some academics disagree with it. d. Generally accepted by the corporate, consulting and academic worlds, but as with most business concepts and models, there are always some detractors

*d. Develop a deep understanding of how the industry creates value now and in the future, whether they use the tools described in the chapter or not

To forecast industry profitability consistently accurately, professional analysts have to: a. Look at the link between industry and structure performance , then, use information on major trends in industry structure to predict their effects upon the forces of competition b. Look at the probability of new entries in the industry, to determine the major trends, and to forecast the probable overall industry profit c. Determine the five larger players in the industry and their relative bargaining power in regards to their buyers and customers, and to identify their strengths and weaknesses d. Develop a deep understanding of how the industry creates value now and in the future, whether they use the tools described in the chapter or not

*b. The capital requirements are very high for the first category and relatively low for the second category

Which characteristics differentiate industries such as, on the one hand, aircraft manufacturers and commercial satellites, and, on the other hand, e-service and fast food industries? a. The second category of industries has very few players whereas the first category of industries is very fragmented, with thousands of players b. The capital requirements are very high for the first category and relatively low for the second category c. The first category is highly sophisticated and requires top notch technical skills, whereas the second category relies upon marketing competencies d. The intensity of competition is lower in the first category of industries than in the second category

*d. Identifying the boundaries between service industries in comparison to doing the same between manufacturing industries

Which is the most difficult? a. Identifying the boundaries for furniture manufacturing industries in comparison to the same analysis for television programming and entertainment industries (Fox and NBC) b. Describing the key success factors for steel, airlines and automobiles in comparison to identifying the critical factors for Fox and NBC in the television programming and entertainment industries c. Analyzing the bargaining power of suppliers in cartels (such as OPEC) in comparison to identifying the bargaining power of customers in the Personal Computer industry d. Identifying the boundaries between service industries in comparison to doing the same between manufacturing industries

*d. Is best answered by ensuring that certain managers are educated in Marketing

The question "What do customers want?": a. Is not relevant because customers will show their preferences through their behavior b. Must be asked by managers, and an accurate answer obtained and understood, since it's the driving force behind generating profit. c. Can be addressed by an extremely good Market Research company d. Is best answered by ensuring that certain managers are educated in Marketing

*c. Requires an understanding of the current and future basis of competition specific to the industry

The question "What does a firm need to survive competition?": a. Can be addressed through a careful analysis of competitors using all possible means, even at the edge of legality and ethics b. Can be addressed by studying very carefully the two largest rivals in the industry c. Requires an understanding of the current and future basis of competition specific to the industry d. Can never be answered clearly, because competitors will not divulge what they are doing