MGMT 425 MIDTERM - CH 3

The barriers to entry in the airline industry are high because airplanes are expensive and very difficult to rent or lease.

False

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.

threat of entry

The risk that potential competitors will enter an industry.

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

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

There is an increase in prices.

complement

a product, service, or competency that adds value to the original product offering when the two are used in tandem

commodity

a raw material or primary agricultural product that can be bought and sold, such as copper or coffee (useful and valuable, such as water and time)

monopoly

an industry is a monopoly when there is only one (large) firm supplying the market

oligopoly

an industry is oligopolistic when it is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power

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.

Buyers are highly price sensitive when:

they earn low profits or are strapped for cash.

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

understand the profit potential of different industries.

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

A company that manufactures its own brand of desktops and laptops

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

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

five forces model

A framework developed by Michael Porter that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy.

PESTEL Framework

A framework that categorizes and analyzes an important set of external forces (political, economic, sociocultural, technological, ecological, and legal) that might impinge upon a firm. These forces are embedded in the global environment and can create both opportunities and threats for the firm.

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.

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.

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

Consumer demand will increase.

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

Mobility barriers

3T Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all 3T users are free. When a person switches to a 3T 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 3T Inc. is given a free wireless connection. This has helped to keep competition away from 3T. In this scenario, which of the following factors is acting as an entry barrier for 3T Inc.?

Network effects

Chinese food is very popular in the city of New Mongoville, a city of five million people. There are only three Chinese restaurants in New Mongoville, but their menus are very similar, so customers have very low switching costs. Do buyers have a lot of bargaining power in this scenario?

No

entry barriers

Obstacles that determine how easily a firm can enter an industry. Entry barriers are offer one of the most significant predictions of industry profit potential.

exit barriers

Obstacles that determine how easily a firm can leave an industry.

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?

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

Perfect competition

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

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.

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

forward integration

changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain

backward integration

changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

economies of scale

cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

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

defining the relevant industry.

capital requirement

describe the "price of the entry ticket" into a new industry

network effect

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

A fragmented industry is made into a consolidated industry through:

horizontal mergers and acquisitions.

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

incumbent firms are highly committed to the business.

switching cost

incurred by moving from one supplier to another

Economies of scale are cost advantages that accrue for firms with:

larger output.

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

strategic group

The relative bargaining power of suppliers is high when:

suppliers provide products that are differentiated.

industry concentration

the degree to which production in an industry—or in the economy as a whole—is dominated by a few large firms

strategic group

the set of companies that pursue a similar strategy within a specific industry

perfect competition

the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers