Econ 136 Chapter 3

New firms have been established in the airline and telecommunications industries after

Deregulation

The amount that savers are paid for use of their money and the amount that borrowers pay for that use is known as

Interest Rate

In addition to the static nature of the PESTEL, Porter's five forces, and strategic group mapping frameworks, what is their other shortcoming?

It does not help us understand why there are performance differences among firms in the same strategic group.

Which statement best describes the rivalry among existing competitors in the airline industry?

It is intense due to the pressures created by industry forces.

Which is a negative effect of inflation?

It reduces purchasing power.

_____ pressure from groups like NGOs often results in legal changes.

Political

What term describes a firm's independent ability to obtain necessary components for producing goods?

Preferential Access

The cost advantages that a firm obtains by increasing output, such as by spreading fixed costs over more units, are called economies of

Scale

Consolidated Industry

dominated by a few large firms, or even just one firm, and has the potential to be highly profitable

It might be a good idea to expand or upgrade a firm's human capital base during a ______, because unemployment is high and therefore human capital is abundant and wages usually ______. downturn; fall boom period, rise downturn; rise boom period; fall

downturn; fall

Through use of the PESTEL model, firms are able to do which of the following? determine internal decision-making processes evaluate external trends evaluate internal resources monitor external factors

evaluate external trends monitor external factors

Which of the following does the five forces model to help firms do? gain and sustain a competitive advantage determine the profit potential of different industries organize co-opetition efforts with other firms understand the strengths and weaknesses of a firm's resources

gain and sustain a competitive advantage determine the profit potential of different industries

Which of the following tend to result from strong competitive rivalry? industry-wide price increases a reduction in the threat of substitutes less product differentiation limits to the industry's profit potential

limits to the industry's profit potential

The threat of entry is high when capital requirements are _____ , Correct Unavailable in comparison to the expected returns.

low

In the airline industry, the ______ involved in offering international routes restricts movement between hub-and-spoke and point-to-point airlines.

mobility barrier

When suppliers can demand higher prices for their inputs or reduce the quality of the input factor delivered, they demonstrate that they are

powerful

Firms are able to create a near monopoly by maximizing ______

product differentiation

What advantage do incumbent firms possess

proprietary technology cumulative experience effects preferential access to distribution channels brand loyalty

The intensity with which companies in an industry jockey for market share and profitability is known as

rivalry

Which of the following are examples of commonly encountered capital requirements? covering the cost of severance packages setting up production facilities managing a production process paying for start-up losses

setting up production facilities managing a production process paying for start-up losses

Price _____ means there is little or no change in the prices of goods and services.

stability

A _____ group is a set of companies within a specific industry that seek to achieve competitive advantage in similar ways.

strategic

Managers are able to influence which of the following types of external forces? currency exchange rates interest rates strategic group composition the structure of their industry

strategic group composition the structure of their industry

When a person that has been using a PC with a Microsoft Windows operating system starts using an Apple computer (which has a different operating system), that person will incur significant customer ______.

switching costs

The fact that tax preparation software such as Intuit's TurboTax is a valid alternative for professional services offered by H&R Block and others, is an example of ______.

the threat of substitutes

Which is the most frequent cause of inflation?

too much money chasing too few goods and services

What is the result of low barriers to entry in the airline industry?

New airlines join the market from time to time.

Which factors result from the processes and actions of government bodies that influence the decisions and behavior of firms?

Political

What impact do strategic commitments have on the airline industry? They increase the need to fill empty seats. They encourage co-opetition. They take power away from consumers. They increase rivalry.

They increase the need to fill empty seats. They increase rivalry.

Exit barriers are composed of ______ factors.

economic and social

Which of the following contribute to consumer buying power? low switching costs high levels of product differentiation real time, accurate price comparisons moderately high barriers to entry

low switching costs real time, accurate price comparisons

In order to influence changes in their political environment, firms pursue Blank______.

nonmarket strategies—that is, through lobbying, public relations, contributions, litigation, and so on, in ways that are favorable to the firm.

Which of the following are factors that increase the power of buyers? Products are standardized. Many consumers buy small amounts of goods. Buyers threaten backward integration. Switching costs are low.

Products are standardized Buyers threaten backward integration Switching costs are low

What conclusions can be reached about the airline industry using the five forces framework?

The mega-airlines must constantly struggle to achieve consistent profitability. The supporting players, such as airports and aircraft suppliers, are quite profitable.

According to Michael Porter, the profit potential of an industry is _____

a function of five forces related to competition

Fragmented Industry

Consists of small firms and low profitability

What occurs when producing or consuming goods and services results in costs or benefits that are not captured by the prices charged for the goods or services.

Externalities

_____ effects result from the basic economic structure of an entire field.

Industry

The threat of ______ is one of the five forces and can be exemplified by the threat that videoconferencing presents to business travel.

substitutes