Chapter 3 - External Analysis: Industry Structure, Competitive Forces, and Strategic Groups

What are ways that powerful suppliers are a threat to firms?

They can reduce the industry's profit potential, they can force the cost of production to increase, and they can capture part of the economic value created by firms.

Rivalry among existing competitors has ___________ with the height of the industry's exit barriers.

a direct relationship

What helped Airbnb develop a successful business of peer-to-peer rental space?

Developing a smooth transaction between hosts and guests, fortuitous timing that led to growing demand, and presenting a well-designed website.

The power of __________ is the pressure they can put on the margins of producers in the industry by demanding a lower price or higher product quality

buyers

The stronger the five forces, the greater the industry's ability to earn above average competitive advantage.

False

An industry analysis provides what?

Insight into a firms strategic position within an industry, the level of profitability that can be expected for the average firm in the industry and a rigorous way of identifying the industry's profit potential

What statement about legal factors as an external force is true?

Regulatory changes tend to affect entire industries at once

Although __________ coordination such as price fixing is illegal in the United States, __________ coordiantion such as "an unspken understanding" is not.

explicit, tacit

Airlines that are strategically committed to the hub-and-spoke model face high fixed costs to maintain their network of routes that affords global coverage. Such strategic commitment leads to high fixed costs and therefore decreased rivalry.

false

Sociocultural factors tend to be fixed

false

In the PESTLE model, political factors are those that relate to

government bodies

When buyers can credibly threaten to backwardly integrate into the industry, the power of buyers is

high

When suppliers offer products that are differentiated, the power of suppliers is

high

What are some of the important sources of entry barriers?

economies of scale, credible threat of retaliation, capital requirements, government policy, and network effects.

Obstacles that determine how easily a firm can enter an industry are called

entry barriers

The obstacles that determine how easily a firm can leave an industry are called

exit barriers

There is a(n) __________ relationship between competitive intensity and the power of buyers and suppliers

positive

What are some examples of commonly encountered capital requirements?

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

What is the result from a strong competitive rivalry?

limits to the industry's profit potential

What are considered nonmarket strategies?

litigation, lobbying, and public relations

Industry-specific factors known as __________ separate one strategic groupd from another.

mobility barriers

When a firm enters an industry, what often occurs?

Incumbent firms lower prices, incumbent firms spend more time to satisfy customers and industry profit potential declines

What are the four main competitive industry structures?

Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly

An industry in which only one firm supplies the market is known as

a monopoly

A group of companies that deal with more or less the same set of suppliers and buyers makes up

an industry

A key feature of an oligopoly is that the competing firms in the industry ___________, meaning the actions of any one firm will influence the behaviors of the other firms.

are interdependent

When a focal company moves upstream in the industry value chain into his supplier's business __________ occurs.

backward integration

Exit barriers, strategic commitments, and competitive industry structure are important factors in determining the intensity of

competition/rivalry

Firms have a tendency to change the industry structure in their favor, for example by making industries more __________ through mergers and acquisitions.

consolidated

A company is a complementor to your company if:

customers value your product more when they can use it with the other company's product

Michael Porter developed the five forces model to help firms

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

The pace of technological change seems to be

increasing

What are the characteristics of a perfectly competitive industry?

individual firms have little or no ability to raise prices, firms in the industry sell a commodity or product, and the industry is fragmented

The relationship between the natural environment and business organizations can best be described as

interdependent

What is likely to be true about a fragmented industry?

it consists of many small firms

Deflation is a serious threat to economic growth because

it stops companies from investing in new production capacity because they expect a further decline in prices, and it distorts expectations about the future.

The economic factors that affect a firm's external environment are

largely macroeconomic

The computer hardware industry is an example of

monopolistic competition

What are some likely outcomes of a competitive rivalry based entirely on price cutting?

most or all value is transferred to the customer, firms struggle to make profits, investments from firms drop off

The online auction site eBay has more than 100 million active users, so buyers are more likey to find what they are looking for while sellers are more likely to find buyers for the items they are offering. This is an example of

network effects

in order to influence changes in their political environment, firms pursue

nonmarket strategies

What statements about industry dynamics are true?

over time, industry structures are not stable and the five forces model is a static model.

In the group of external factors the form the PESTEL model, the "P" stand for __________ and the "L" stands for ___________.

political, legal

According to the five forces model, a firm seeking to compete in an established industry should seek to do what?

position itself in a way that relaxes the constraints of strong forces and position itself in a way that leverages weak forces

What are the advantages of incumbent firms, regardless of size?

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

Firms are able to create a new monopoly by maximizing

product differentiation

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

scale

What helps determine a competitive industry structure?

size and number of competitors, the firm's degree of pricing power, and the height of entry barriers

A(n) __________ group is a set of companies whiten a specific industry that seeks to achieve competitive advantage in similar ways.

strategic

Managers are able to influence what types of external forces?

strategic group compositions and the structure of their industry

The threat of __________ is one of the five forces and can be exemplified by the threat that video conferencing presents to business travel

substitutes

When restrictive government policies do not exist or when industries become deregulated, the __________ of entry is high

threat

What are forces in Porter's five forces model?

threat of new entrants, threat of substitute products or services, and bargaining power of buyers

To determine economic value, one must subtract the cost of production from the

value of a firms product or service

A firm's strategic position relates to its ability to create __________ for customers containing the __________ to do so.

value, cost

A firm's strategic position relates to its ability to create __________ for customers while containing the ___________ to do so.

value, cost

What conditions lead to a strong threat of substitutes?

when the cost of switching to the substitute is low and when the price-performance trade-off is attractive

Governments sometimes set up a natural monopoly when a venture

would otherwise not be profitable

Recessions are less likely to harm __________ -cost airlines, which appeal more to budget-conscious travelers than legacy carriers

low

The threat of entry is high when capital requirements are __________ in comparison to the expected returns.

low