Final Exam - Quiz 1-6

Which of the following is not a way teams "collude" within professional sports markets? c) Employing the same pool of referees b) Agreeing on rules and schedules a) Agreeing on ticket prices e) Agreeing on rookie drafts d) Sharing national broadcast revenues

a) Agreeing on ticket prices

What term best describes when quiet periods in markets are punctuated by fundamental "shocks" or "discontinuities" that destroy old sources of advantage and replace them with new ones? a) Creative destruction b) Entrepreneurship c) Innovation d) Market for ideas e) Disruptive technologies

a) Creative destruction

What type of entry exists if (1) the incumbent can keep the entrant out by employing an entry-deterring strategy and (2) employing the entry-deterring strategy boosts the incumbent's profits? b) Judo Entry d) Accommodated Entry c) Stealth Entry a) Deterred Entry e) Blockaded Entry

a) Deterred Entry

Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market? b) Price leading a) Limit pricing d) Quality pricing e) Capacity expansion c) Predatory pricing

a) Limit pricing

What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market? a) Industry effect b) Competitive advantage c) Business unit effect d) Competitive position e) Market profitability economics

b) Competitive advantage

What type of cooperation-inducing strategy is defined as one so compelling that that a firm would expect all other firms to adopt it? a) Backward induction b) Focal point c) Always aggress d) Coordination e) Folk

b) Focal point

Which of the following is a complement to professional sports? c) Luxury Boxes at stadiums b) Gambling e) None of the above a) Merchandise sales d) Food and beverage sales

b) Gambling

Which of the following is the most likely substitute for commercial aircraft travel between Chicago and Tokyo? d) Commuter train e) Walking b) Teleconferencing a) Bicycle c) Automobile

b) Teleconferencing

What term describes when a firm sells a combination of goods and services at a price below what the individual items would cost? b) Combining e) Assembling d) Mixing a) Packaging c) Bundling

c) Bundling

How can incumbents legally erect entry barriers around novel and non-obvious products or production processes? d) Formation of a cartel e) Price fixing b) Predatory pricing a) Collusive pricing c) Patents

c) Patents

Which of the following commitment strategies involves soft commitment postures, strategic complements for the stage 2 tactical variables, a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader? a) Top Dog b) Lean and Hungry Look c) Weak Kitten d) Puppy-Dog Ploy e) Fat-Cat Effect

c) Weak Kitten

What term describes a framework used in strategy based on resource heterogeneity which posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile? a) Persistence of profitability for the firm b) Capability-based theory of the firm c) Regression to the mean d) Resource-based theory of the firm e) Five-forces framework

d) Resource-based theory of the firm

What term refers to the ability of firms to negotiate purchase prices that extract higher profits from buyers? a) Substitutes and Complements b) Competition d) Seller power c) Customer power e) Buyer power

d) Seller power

What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes? a) Response strategy b) Always cooperate strategy c) Always aggress strategy d) Tit-for-tat strategy e) Trigger strategy

d) Tit-for-tat strategy

What term best describes assets that are more valuable when used together than when separated? a) Isolating b) Value-creating c) Imperfectly mobile d) Scarce e) Cospecialized

e) Cospecialized

Which of the following is a potential risk of a brand umbrella? a) The brand umbrella reduces the incumbents sunk cost of introducing a new product b) The umbrella brand may help the incumbent navigate the vertical chain d) A brand umbrella may make suppliers and distributors more willing to enter relationship specific investments in or sell credit to incumbents e) If a new product under the umbrella fails, consumers may become disenchanted with the entire brand c) The brand umbrella allows an incumbent offset uncertainty about the quality of a new product

e) If a new product under the umbrella fails, consumers may become disenchanted with the entire brand

What term describes a decision that has a short-term impact and is easy to reverse? a) Dedicated investment b) Strategic commitment c) Critical choice d) Market investment e) None of the above

e) None of the above

How did European governments help Airbus aggressively pursue a 50% market share in its early years of operation? e) Guaranteeing a set level of annual aircraft purchases d) Paying in excess of cost for military aircraft b) High-interest loans c) Helping to ensure scope economies from military aircraft division a) Subsidies

a) Subsidies

What term refers to the costs incurred by buyers when they change to a different supplier? a) Switching costs b) Buyer costs c) Reputation costs d) Learning costs e) Customer costs

a) Switching costs

The steepness (slope) of an indifference curve indicates which of the following? a) The tradeoff a consumer is willing to make between price and quality b) The change in price holding product benefit constant c) The change in benefit holding price constant d) The tradeoff between consumer surplus and producer surplus e) None of the above

a) The tradeoff a consumer is willing to make between price and quality

Which of the following best describes a focus strategy? a) When a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both b) When a firm sells products manufactured with raw materials from monopoly suppliers c) When a firm is the only one selling specific products d) When a firm faces many competitors and charges a lower price e) None of the above

a) When a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both

When are sunk costs a most effective entry barrier? d) When a firm has a reputation for toughness or competes in multiple markets e) When marginal costs are low and flooding the market causes large price reductions c) When channels are few and hard to replicate b) When incumbents have long-standing relationships with suppliers and customers a) When the incumbent has incurred them, and the entrant has not

a) When the incumbent has incurred them, and the entrant has not

In which of the following ways can entry erode incumbents' profits? e) Entrants reduce internal rivalry b) Entrants decrease market concentration c) Entrants usually grow the market for all parties a) Entrants divide market demand among fewer sellers d) Entrants increase market concentration

b) Entrants decrease market concentration

What type of entry exists if structural entry barriers are low, and either (1) entry-deterring strategies will be ineffective or (2) the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out? a) Deterred Entry c) Stealth Entry d) Accommodated Entry e) Blockaded Entry b) Judo Entry

d) Accommodated Entry

Which of the following best describes an incumbent firm? d) One that is already operating in a particular market c) One that faces no competition in its market b) One that just exited a market e) None of the above a) One that just recently entered a market

d) One that is already operating in a particular market

Why do price-sensitive buyers tend to harm cooperative pricing in a market? a) They cause an increase in detection lags because competitor prices become more difficult to monitor b) There is a resultant decrease in the frequency of interaction between competitors c) There is an increase in the probability of misreads d) The is an increase in temptation to cut price, even if competitors are expected to match e) There is an increase in detection lags because prices of competitors are more difficult to monitor

d) The is an increase in temptation to cut price, even if competitors are expected to match

Consumer surplus is measured as which of the following? a) The excess of sales price over manufacturing cost b) The amount a consumer pays for a good minus search cost c) The perceived manufacturing cost by a consumer as a percentage of sales price d) The perceived benefit of a product per unit consumed minus the product's monetary price e) The loss incurred by a firm selling at a price below its manufacturing cost

d) The perceived benefit of a product per unit consumed minus the product's monetary price

What entity as a supplier has the most substantial power over manufacturers in the commercial aircraft market? c) Aircraft leasing companies e) Passengers a) Raw materials suppliers b) Airlines d) Unions

d) Unions

What term best describes a targeting strategy in which the firm offers a variety or related products to a particular class of customers? a) Broad-coverage strategy b) Focus Strategy c) Geographic specialization d) Product specialization e) Customer specialization

e) Customer specialization

Which of the following terms best describes the ability of a firm to maintain and adapt the capabilities that are the basis of its competitive advantage? a) Riskiness of R&D b) Correlated research strategies c) Evolutionary economics d) Dynamic efficiency e) Dynamic capabilities

e) Dynamic capabilities

Which of the following is not an isolating mechanism that falls under the heading of early-mover advantage? a) Learning curve b) Reputation and buyer uncertainty c) Buyer switching costs d) Network effects e) Superior access to inputs or customers

e) Superior access to inputs or customers

Which of the following is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity? a) The investment in excess capacity must be sunk prior to entry e) The excess capacity investment must be recoverable prior to entry b) The incumbent should have a sustainable cost advantage c) Market demand growth should be slow d) The potential entrant should not itself be attempting to establish a reputation for toughness

e) The excess capacity investment must be recoverable prior to entry

Which of the following terms best describes a phenomenon whereby a profit-maximizing firm sticks with its current technology or product concept even though the profit-maximizing decision for a firm starting from scratch would be to choose a different technology or product concept? a) The replacement effect b) Strategic intent c) Strategic stretch d) Hypercompetition e) The sunk cost effect

e) The sunk cost effect

Which of the following does not tend to affect the threat of entry? b) Government protection of incumbents e) Network externalities c) Consumers highly valuable reputation/consumers are brand loyal a) Expectations about pre-entry competition d) Experience curve

a) Expectations about pre-entry competition

Which of the following terms describes a nation's position with regard to the elements (e.g. human resources, infrastructure) of production that are necessary to compete in a particular industry? a) Factor conditions b) Demand conditions c) Supply conditions d) Related supplier or support industries e) Strategy, structure, and rivalry

a) Factor conditions

Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs? a) Limit pricing d) Quality pricing e) Capacity expansion b) Price leading c) Predatory pricing

a) Limit pricing

What was the cause of Walmart's exit from the German market? a) Loss of a predatory pricing lawsuit b) High tariffs on imported goods d) German regulations against foreign owned firms c) Total revenue that failed to cover sunk costs e) None of the above

a) Loss of a predatory pricing lawsuit

Which of the following situations does NOT facilitate cooperative pricing? a) Low-demand periods b) Advance announcement of price changes c) Price leadership d) Most favored customer clauses e) Uniform delivered prices

a) Low-demand periods

Which of the following generally accompanies firms that survive as market entrants? e) None of the above c) Higher average revenue than incumbents d) Small size allowing fast decision making b) Lower marginal costs than incumbents a) Precipitous growth

a) Precipitous growth

What type of option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future? a) Real option b) Commitment option c) Project option d) Decision option e) Future option

a) Real option

What term describes a decision that has a long-term impact and is difficult to reverse? a) Strategic commitment b) Critical choice c) Market investment d) Firm commitment

a) Strategic commitment

What term describes the process of using market prices of unfinished and semi-finished goods to estimate the incremental value-created by distinctive parts of the value chain? a) Value-added analysis b) Value creation analysis c) Market value analysis d) Value benefit drivers e) Value cost drivers

a) Value-added analysis

Which of the following best describes a tit-for-tat strategy? a) A firm charges a fixed price to every customer b) A firm is prepared to match whatever change in strategy a competitor makes c) A firm offers discounts for purchasing in quantity d) A firm requires customers to enter into long-term purchase contracts e) None of the above

b) A firm is prepared to match whatever change in strategy a competitor makes

Which of the following conditions does not tend to heat up price competition? d) The industry is stagnant or declining e) There are large/infrequent sales orders a) Many sellers in the market c) Some firms have excess capacity b) Products are differentiated/buyers have high switching costs

b) Products are differentiated/buyers have high switching costs

What term best describes clusters of activities that a firm does especially well in comparison with other firms? a) Competitive advantage b) Resources c) Capabilities d) Threats to sustainability e) Strategic firm assets

c) Capabilities

Which of the following is not a factor that could intensify internal rivalry in the Chicago hospital market? e) Aging baby boomers increasing demand for admissions d) Excess capacity b) Considerable variation in production costs c) Relatively small number of doctors a) Relatively large number of hospitals

c) Relatively small number of doctors

What term best describes firm-specific assets such as patents and trademarks, brand-name reputation, installed base, and organizational culture? a) Competitive advantage b) Capabilities c) Resources d) Threats to sustainability e) Strategic firm assets

c) Resources

What is a grim trigger strategy in a two-firm repeated game? a) A strategy where a firm will always aggress regardless of how the other firm acts b) A strategy where a firm will always cooperate regardless of how the other firm acts c) A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes d) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses e) A strategy in which a firm is prepared to aggress when its opponent cooperates and cooperate when its opponent aggresses

d) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses

Which of the following represents consumer surplus in the value creation equation, (B-P) + (P-C)? a) B b) P c) C d) B-P e) P-C

d) B-P

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices? a) Tough commitment b) Strategic complement c) Soft commitment d) Strategic substitute e) Duopoly

d) Strategic substitute

Which of the following is a resource? a) Brand promotion skills b) Yield management capabilities c) Ability to manage sourcing and procurement functions d) Workers with firm-specific expertise or know-how e) Ability to integrate order-taking, procurement, manufacturing and out-bound logistics

d) Workers with firm-specific expertise or know-how

What type of curve can be used to describe the set of price-quality combinations that yields the same consumer surplus to an individual? a) Frontier curve b) Learning curve c) Level curve d) Implicit curve e) Indifference curve

e) Indifference curve

What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it? a) Value creation effect b) Product linkage c) Product externality d) Complementary effect e) Network effect

e) Network effect

Which of the following is a capability? a) Patents and trademarks b) Brand-name reputation c) Installed base d) Organizational culture e) Sourcing skills

e) Sourcing skills

Which of the following is a method a monopolist firm would not use to prevent entry into a market? b) Predatory pricing e) Utilizing excess capacity for generic branded products c) Capacity expansion d) Strict patent enforcement a) Limit pricing

e) Utilizing excess capacity for generic branded products

Benefit proximity refers to which of the following? a) Competing firms offering products with exactly the same benefit b) Cost leading firms offering products with slightly less benefit c) Product benefits that cannot easily be differentiated by the consumer d) Cost leading firms offering products with slightly more benefit e) The inability for competing firms to produce products with similar benefits

b) Cost leading firms offering products with slightly less benefit

Substitutes erode profits because of which of the following factor? c) Firms producing substitutes use similar worker skills dividing the labor pool d) Manufacturers of substitutes enter markets later and have lower sunk costs a) Substitutes compete for similar inputs driving up production costs e) None of the above b) Substitutes divide demand and drive up internal rivalry

b) Substitutes divide demand and drive up internal rivalry

Which of the following is a trend that Chicago area hospitals should least likely be worried about with respect to pricing? d) If regulatory barriers fall, entry by specialty hospitals in wealthier communities could skim off some of the areas' most profitable patients b) There has been considerable consolidation (hospital mergers) in regional submarkets, including the city of Chicago and the important North Shore suburbs a) The FTC recently won an antitrust case that forced the members of the Evanston Northwestern Healthcare system to negotiate independently with insurers e) Employers, payers, regulators and patients are demanding and getting more information about hospital quality c) Employers are asking employees to bear more of their own health care costs. At the same time some employers are reconsidering the decision to opt for wide, but costly MCO networks

b) There has been considerable consolidation (hospital mergers) in regional submarkets, including the city of Chicago and the important North Shore suburbs

What is the perceived benefit of a product per unit consumed minus the product's monetary price? a) Value creation b) Competitive advantage c) Consumer surplus d) Maximum willingness-to-pay e) Value chain

c) Consumer surplus

What situation occurs when a large incumbent sets a low price to drive smaller rivals from the market? c) Predatory pricing d) Quality pricing b) Price leading e) Capacity expansion a) Limit pricing

c) Predatory pricing

Which of the following terms best describes the situation when sources of competitive advantage in an industry are being created and eroded at an increasingly rapid rate? a) Leveraging resources b) Strategic intent c) Strategic stretch d) Hypercompetition e) Global dominance

d) Hypercompetition

Why might a firm not be able to react quickly to competitors' pricing moves? a) Lags in detecting competitors' prices b) Infrequent interactions with competitors c) Ambiguities in identifying which firm among a group of firms in a market is cutting price d) Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand e) All of the above

e) All of the above

What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following? a) Regression to the mean b) Competitive advantage c) Persistent performer d) Sustainable firm e) Predictable performance

a) Regression to the mean

What type of isolating mechanisms impedes existing firms and potential entrants from duplicating the resources and capabilities that form the basis of the firm's advantage? a) Scarce b) Imperfectly mobile c) Early-mover advantages d) Impediments to imitation e) Cospecialized

d) Impediments to imitation

What term coined by Michael Porter describes a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process fails to achieve either a cost advantage or a benefit advantage? a) Five forces b) Value creation c) Value chain d) Stuck in the middle e) Generic strategy

d) Stuck in the middle

Which of the following is not a barrier to entry in professional sports markets? c) Most potential owners must offer to build new stadiums e) Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped a) Each league has rules governing the addition of new franchises d) Incumbent teams have rights to veto franchises in their own geographic markets b) Potential new owners must pay current owners hundreds of millions of dollars

e) Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped

What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game? a) Dedicated pricing b) Strategic pricing c) Marginal pricing d) Cost-plus pricing e) Cooperative pricing

e) Cooperative pricing

How much revenue a firm brings in by improving the quality of a product such that more consumers want to buy it depends on which two factors? a) The decrease in demand caused by the increase in quality and the incremental profit earned on each additional unit sold b) The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold c) The increase in demand caused by the increase in quality and the incremental loss on each additional unit sold d) The decrease in demand caused by the increase in quality and the incremental loss on each additional unit sold e) The quality of changes to the original product and the decrease in demand cause by the changes in quality

b) The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold

What type of isolating mechanisms increase the economic power of a competitive advantage over time once a firm has acquired that advantage? a) Scarce b) Imperfectly mobile c) Early-mover advantages d) Impediments to imitation e) Cospecialized

c) Early-mover advantages

What type of good is one whose quality can be assessed only after the customer has used it for a while? a) Apparel b) Search good c) Experience good d) Office furniture e) Airline tickets

c) Experience good

Which of the following best describes the term, internal rivalry? a) Divisions competing within a firm for resources e) Suppliers dividing factors between competing firms d) Firms competing for resources to produce goods c) Firms jockeying for share within a market. b) Differing product lines from one manufacturer competing

c) Firms jockeying for share within a market.

What is another term for a "win-win" business opportunity? a) Economic profit b) Excess total surplus c) Gains from trade d) Consumer surplus excess e) Benefit - Benefit transaction

c) Gains from trade

Which of the following is not a significant entry barrier in the commercial airframe manufacturing market? b) Learning curve in production a) High development costs e) Airlines are reluctant to purchase from startups d) Airlines prefer to purchase from the same manufacturer c) Raw materials and labor

c) Raw materials and labor

What are the two types of barriers to entry? a) Legal and strategic c) Structural and strategic e) Price and Structure b) Price and Size d) Size and Legal

c) Structural and strategic