CH 1 - 6 QUIZ

What is the approximate observed median learning curve slope for typical firms?

.8

Based on Bresnahan and Reiss' study of the relationship between concentration and prices, how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?

3

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?

Accommodated Entry

What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination, agency and transaction costs?

Agency efficiency

Which of the following is not a benefit of tapered integration?

Allows the firm to produce most efficiently in all circumstances

What is a market firm?

An independent outsourcing partner

Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?

Arm's length market transactions

What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?

Asymmetric information

Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain. What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?

Backward Integration

What kind of competition is generally described as price competition?

Bertrand competition

Matchmakers between manufacturers and sellers are called:

Brokers

Which of the following is not a benefit that Toys "R" Us gained through its alliance with McDonald's Japan?

Changes to Japan's Large-Scale Retail Store Law requiring MITI approval

Which of the following is not a method to protect intellectual property?

Charging higher prices to limit access to IP

For what critical aspect of drug development has research (Azoulay & Henderson) shown that major drug houses have chosen tapered integration?

Clinical Research

Which of the following did not contribute to the high transaction related risks for U.S. potato sales in 1840?

Competition from European merchants

Which of the following is not a way managers generally benefit from acquisitions?

Consolidation of other senior executives

What are agency costs?

Costs associated with slack effort and with the administrative controls to deter it

What empirical method generally is used to measure the degree to which products substitute for each other?

Cross-price elasticity

Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?

DeBeers in diamonds OR International Tin Council, Ocean Spray

What term describes features that need to relate to each other in a precise fashion otherwise they lose a significant portion of their economic value?

Design attributes

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?

Deterred Entry

Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?

Diversifying shareholder portfolios

What are economies of density as referred to in the airline industry?

Economies of scale along a given route

What term does Uzzi use to describe relationships characterized by trust and a willingness to exchange closely held information and work together to solve problems?

Embedded ties

Which of the following encouraged firms to develop through internal R&D rather than through M&A in the 20th century?

Federal antitrust policies

What was one of the first plant/factory types to use the "American System" of manufacturing?

Firearms

Which of the following is the definition of "competitors"?

Firms whose strategic choices directly affect one another

What is the term for examining consumers travel patterns?

Flow analysis

What firm is generally regarded as being the first to extensively use mass production processes?

Ford

Which of the following in the late 19th century was predicted by the asset-specificity hypothesis?

Forward integration was most likely to occur for products that require specialized investments in human capital

The reduction of co-ordination and hold-up problems depends on:

Governance arrangements

What group/type of preferences describes when tastes differ markedly from one person to the next and result in horizontal differentiation?

Idiosyncratic preferences

Which of the following is a potential risk of a brand umbrella?

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

How does umbrella branding aid economies of scale and scope?

Increases effectiveness of advertising due to offering a broad product line under one name

Which of the following in the late 19th century was predicted by the firm-size hypothesis?

Increases in the size of manufacturing firms led to independent wholesale and marketing agents losing scale/scope cost advantages and in turn led to manufacturers forward integrating into marketing and distribution

What term describes existing firms in a monopolistically competitive market?

Incumbents

What was the major role of private banks in the early 1800s?

Issue credit

Which of the following is a characteristic of an implicit contract?

It is an understanding between parties in a business relationship

Which term describes the situation where a smaller firm and potential entrant can use the incumbent's size to its own advantage?

Judo economics

Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?

Limit pricing

Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs?

Limit pricing

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs?

Long-run economies of scale

What was the cause of Walmart's exit from the German market?

Loss of a predatory pricing lawsuit

What is a benefit of alliances and joint ventures over mergers and acquisitions?

Lower likelihood of antitrust scrutiny

What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?

Manager/worker slacking

What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?

Market for corporate control

What is defined by the number and size distribution of the firms in a market?

Market structure

What was the most significant development to the evolution of business circa 1910?

Mass-production technology

Examining which of the following is broadly considered one of the easiest ways to measure diversifying activity?

Mergers and acquisitions

Which of the following market structures generally has a herfindahl index at 0.6 and above (usually having light competition, unless threatened by entry)?

Monopoly

What term describes a firm that faces little or no competition in one of its input markets?

Monopsonist

The process by which governance develops is known as:

Path Dependence

In what type of market structure do sellers set identical prices and are prices generally driven down to marginal costs?

Perfect competition

What term describes a market where a monopolist cannot raise price above long run average cost?

Perfectly contestable

Of the following industries listed, which one is generally thought of as having the highest search costs?

Physician service

What term represents the conduct and performance of firms in the market after entry has occurred?

Postentry competition

Which of the following generally accompanies firms that survive as market entrants?

Precipitous growth

The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?

Product innovation

Which of the following is not a result of the holdup problem?

Reduction in the transaction costs of arm's length market exchanges

What measure, that depends on how much of a firm's revenues are attributable to product market activities that have shared technological characteristics, production characteristics, or distribution channels, is used to determine how diversified a firm is at a given time?

Relatedness

What concept describes the situation where the owner of an asset grants another party the right to use that asset, but the owner retains all controlling rights that are not explicitly stipulated in the contract?

Residual rights of control

What is the gaizhi process?

Restructuring whereby small firms are leased or solds

Which of the following best describes economies of scope?

Savings are achieved when a firm produces a wider variety of goods

Which of the following types of fit (used to aide in coordination along all dimensions of production) explains a situation where the steps of a particular process must occur in a particular order?

Sequence fit

Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remaining portion from independent firms?

Tapered integration

What form of communication was integral to the growth of multistory headquarter buildings?

Telephone

What mode of long-distance communication first laid the groundwork for today's modern communication forms?

Telephone

What do the vertical boundaries of a firm refer to?

The activities the firm itself performs versus purchases from independent firms

Which of the following is a characteristic of economies of scale?

The average cost declines as output increases

What is a catchment area?

The contiguous area from which a firm draws most of its customers

What are influence costs?

The cost of activities aimed at affecting the distribution of benefits in an organization

Which of the following is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity?

The excess capacity investment must be recoverable prior to entry

The average PCM (percentage contribution margin) in a Cournot equilibrium is given by the formula PCM=H/η, where H is the Herfindahl index and η is the price elasticity of market demand. Given this equation, which of the following statements is true?

The less concentrated the industry, the smaller the PCMs in equilibrium

What is the minimum efficient scale (MES) of production?

The minimum point on a U-shaped average cost curve

What is throughput?

The movement of inputs and outputs through a production process

Which of the following led to the development of the financial infrastructure pre- 1910?

The systemization and circulation of credit information

Which of the following is generally a way that LBOs can help a firm realize its potential value?

The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds

What is the accounting concept inventory turnover as developed by Sears in the late 19th century?

To link profits to fluctuations in sales volume

What significant government infrastructure project led to the development of national stock and commodity markets?

Transcontinental Railroad

Which of the following is not a method a firm could use to force vertical foreclosure?

Upstream competitor acquires downstream competitor and refuses to buy from other suppliers

Which of the following is a reason for a firm to Buy rather than make?

Upstream firms aggregate the demands of many buyers and provide economies of scale.

Which of the following practices does not contribute to the strategic fit of Southwest Airlines?

Use of multiple types of planes

What term describes the differentiation of a product when it is unambiguously better or worse than competing products?

Vertical differentiation

When is predatory pricing a most effective entry barrier?

When a firm has a reputation for toughness or competes in multiple markets

Which of the following conditions may make predatory pricing by incumbents rational?

When entrants are uncertain about market conditions

Under what circumstance would it be logical to leave contracts vague and open-ended?

When performance may be ambiguous or difficult to measure.

According to the GHM Theory, the choice between an in-house sales force versus independent agents should turn on the relative importance of investments in developing persistent clients by the agent versus list-building activities by the insurance firm. What would GHM thus predict about the sales of whole life versus term life insurance?

Whole life would be sold by the insurance company's in-house sales force; term by an independent agent

Which of the following is a source of diseconomies of scale at a large firm?

a) Labor costs b) Spreading specialized resources too thin c) Conflicts of interest d) Incentive processes e) All of the above E - ANSWER

What empirical method generally is used to measure the degree to which products substitute for each other?

a) Limit pricing b) Predatory pricing c) Capacity expansion d) All of the above D - ANSWER

Which of the following features of transactions make those transactions excellent candidates for alliances?

a) The transaction involves impediments to comprehensive contracting b) The transaction is complex, not routine. c) The transaction involves the creation of relationship-specific assets by both parties in the relationship, and each party to the transaction could hold up the other d) It is excessively costly for one party to develop all the necessary expertise to carry out all the activities itself e) All of these E - ANSWER