Chapter 2

One of the defining characteristics of the mature stage of the industry life cycle is that growth is low or zero

True

The extent of rivalry among established companies is lowest when: a. the industry's product is a commodity. b. demand is growing rapidly. c. exit barriers are substantial. d. the industry is entering a decline stage. e. the fixed costs are high.

b. demand is growing rapidly.

Due to advances in medicine, Americans are currently living longer now than in the past. As a result, the sale of products that meet the needs of older individuals, such as devices that assist in walking and movement, have increased. In the context of an industry's macroenvironment, age is considered a: a. technological force. b. demographic force. c. social force. d. political force. e. legal force.

b. demographic force.

An impact that the changing industry boundaries have had is that: a. owners of companies can now defme boundaries. b. there is an increase in the number of competitors for companies. c. technological changes do not affect companies anymore. d. the pattern of customer needs does not affect companies anymore. e. the number of product substitutes available for customers has reduced.

b. there is an increase in the number of competitors for companies

______ arise when a customer invests time, energy, and money shifting from the products offered by one established company to the products offered by a new entrant. a. Overhead costs b. Incremental costs c. Marginal costs d. Opportunity costs e. Switching costs

e. Switching costs

Which of the following is NOT a determinant of the extent of rivalry among established companies? a. Industry competitive structure b. Demand conditions c. The cost structure of firms in an industry d. Exit barriers e. The power of buyers

e. The power of buyers

As a barrier to new entry, absolute cost advantages can be based on: a. continuous advertising of brand and company names, and product innovation achieved through research and development. b. high product quality, service-oriented innovations, and good after-sales service. c. cost reductions that arise from the mass production of standardized output. d. the unique ability of established companies to spread fixed costs over a large volume. e. superior production operations and processes due to accumulated experience, patents, or trade secrets

e. superior production operations and processes due to accumulated experience, patents, or trade secrets.

Entry barriers in embryonic industries tend to be based on: a. brand loyalty. b. economies of scale. c. absolute cost advantages. d. regulatory advantage. e. technological knowhow.

e. technological knowhow.

Due to a recent relaxation in the pollution control laws by the government, Alpha Motors has reduced the production of its electric-powered cars. The company is responding to a change in which of the following macroenvironmental forces? a. Macroeconomic b. Demographic c. Political and legal d. Social e. Global

c. Political and legal

Which of the following statements is true about the complementors? a. Their impact on industries was first recognized by Porter's five forces model. b. They have little importance in high-technology industries. c. They have the power to impact the sales of the industry to which they supply complement products. d. They tend to increase the sales of the industry they are supplying complements to by producing fewer low quality complement products. e. They cannot gain enough power to extract profits from the industry to which they supply complement products.

c. They have the power to impact the sales of the industry to which they supply

Economies of scale can arise from: a. cost reductions gained through decreased production. b. high prices on bulk purchases of raw material inputs and component parts. c. an advantage gained by spreading fixed production costs over a large production volume. d. increased spending on marketing and advertising activities. e. poor production operations.

c. an advantage gained by spreading fixed production costs over a large production volume.

A consolidated industry structure: a. consists of a large number of small companies. b. can be seen in agriculture, dry cleaning, health clubs, and real estate brokerage. c. consists of few companies that are in a position to determine industry price. d. provides no scope for oligopoly to exist. e. is characterized by low-entry barriers and commodity-type products.

c. consists of few companies that are in a position to determine industry price

In the late 1800s, when the automobile was first manufactured, the automobile industry would have been considered a(n): a. mature industry. b. stakeout industry. c. embryonic industry. d. growth industry. e. declining industry.

c. embryonic industry.

Members of a strategic group: a. compete only with members of other strategic groups. b. are affected by Porter's five competitive forces in the same way and to the same degree as the members of other strategic groups. c. follow a business model that is similar to that pursued by other companies in the group. d. face no threat of product substitutes from other members. e. move easily between groups without barriers.

c. follow a business model that is similar to that pursued by other companies in the group.

In growth industries: a. the intensity of rivalry is very high. b. technological expertise is the most important entry barrier. c. threat from potential competitors is typically highest. d. distribution channels are poorly developed. e. buyers are not familiar with the industry's products.

c. threat from potential competitors is typically highest.

If economies of scale are an industry's primary entry barrier, a new entrant's major concern is: a. its inability to counter brand loyalty that customers have for established companies in the industry. b. the inferior quality of its products. c. its inability to match the innovation of the established firm. d. its inability to produce in sufficient volume to match the cost advantages of established producers. e. its inability to get buyers to switch to its product.

d. its inability to produce in sufficient volume to match the cost advantages of established producers.

A baking company has different product ranges like whole-wheat pizzas for the diet-conscious and rich cookies for children and youngsters. The company is catering to different groups of customers known as: a. investors. b. entrants. c. sectors. d. market segments. e. substitutes.

d. market segments

Demand reaches total saturation in the stage of the industry life cycle. a. embryonic b. growth c. shakeout d. maturity e. decline

d. maturity

The threat from potential competitors is greatest in the stage of the industry life cycle. a. embryonic b. growth c. shakeout d. maturity e. decline

d. maturity

Many beverage manufacturers are noticing that the sales for packaged water and fruit-based beverages is increasing compared to carbonated drinks as customers are increasingly becoming health conscious. This change in customer preferences can be attributed to which of the following factors of the macroenvironment? a. Economic forces b. Demographic forces c. Technological forces d. Political forces e. Social forces

e. Social forces

A group of firms manufactures writing implements such as pens, pencils, and markers. This group should be referred to as a(n): a. substitute. b. market segment. c. service provider. d. regulator. e. industry.

e. industry

The bargaining power of an industry's suppliers is greater when: a. the supply industry is fragmented. b. switching costs are minimal for companies because of little difference among products offered by different suppliers. c. the industry buys in large quantities. d. the product that suppliers sell has many substitutes and is not vital to the companies. e. the industry is not an important customer to the suppliers.

e. the industry is not an important customer to the suppliers.

A company's closest competitors are those in its strategic group, not those in other strategic groups in the industry

True

A technological change, such as the rise of the Internet, can represent either an opportunity or a threat

True

Deregulation of the mortgage industry is an example of how political and legal forces can impact an industry

True

Government deregulation of telephone service lowered the barriers to entry and lowered industry profit rates

True

Growing demand tends to reduce rivalry because all companies can sell more without taking market share away from other companies

True

High-technology industries are dependent on complementary products for their mutual success

True

In Porter's framework, the stronger the five forces, the ability of established companies to raise prices and earn greater profits becomes more limited.`]

True

Intense rivalry lowers prices and raises costs

True

Interest rates have an impact on the sale of autos, appliances, and capital equipment, and thus represent a macroeconomic force

True

Market segments are distinct groups of customers within a market that can be differentiated from each other on the basis of their individual attributes and specific demands

True

Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that allow it to become more profitable.

True

Rapid growth in demand enables companies to expand their revenues and profits without taking market share away from competitors

True

The greater the exit barriers, the harder it is for companies to reduce capacity, and the greater the threat of severe price competition

True

The risk of entry by potential competitors is a function of the height of the barriers of entry

True

Threats arise when conditions in the external environment endanger the integrity and profitability of the company's business.

True

When the value of the dollar is low compared to the value of other currencies, products made in the United States are relatively inexpensive and products made overseas are relatively expensive

True

A group of firms all make tools for baking-pots, pans, measuring cups, and utensils. This group should be referred to as a market segment.

False

Changes in the characteristics of a population, such as age or race, are irrelevant to the analysis of an industry's

False

Starbucks and an independent local cafe are different in terms of their business techniques. They both sell coffee, and therefore belong to the same strategic group

False

Substitute products are not a threat if a company is the market leader

False

Successful innovation cannot transform the nature of industry competition

False

Suppliers are the most powerful when the products that they sell have many substitutes

False

The more commodity-like an industry's products is, the lower the intensity of any price war that may develop

False

The punctuated equilibrium view can be described as a freezing, but not unfreezing, process in an industry's life cycle

False

To determine its opportunities and threats, a firm should focus on internal processes and capabilities.

False

Which of the following industry structures consists of a large number of small or medium-sized companies, none of which is in a position to determine industry price? a. Fragmented industry b. Consolidated industry c. Oligopoly d. Monopoly e. Sector

a. Fragmented industry

Which of the following statements is true about potential competitors in an industry? a. They threaten the profitability of established companies. b. They are usually encouraged by established companies. c. They find it easier to enter an industry when the entry barriers are high. d. They find it easier to enter an industry when established companies have economies of scale. e. They usually have an absolute cost advantage over established companies

a. They threaten the profitability of established companies.

An industry can be defined as a group of: a. companies offering products or services that are close substitutes for each other. b. manufacturing plants of a single company. c. different kinds of companies that are based in the same geographic location. d. companies that are different but generate similar amounts of revenues. e. brands that offer different products but are owned by a single firm

a. companies offering products or services that are close substitutes for each other

Market segments are groups of: a. customers within a market that can be different from each other on the basis of their distinct attributes and specific demands. b. companies within a market that produce similar goods or services which are close substitutes of each other. c. companies that follow a similar business model and cater to the needs of similar customers. d. closely related industries. e. large companies that are in a position to determine industry price.

a. customers within a market that can be different from each other on the basis of their distinct attributes and specific demands.

As an industry enters the decline stage: a. growth becomes negative. b. rivalry among established companies usually decreases. c. competitive pressures abate. d. capacity reduces. e. demand remains the same.

a. growth becomes negative.

Philip Morris capitalized on the growing health consciousness trend when it acquired Miller Brewing Company, and then redefined competition in the beer industry with its introduction of low-calorie beer (Miller Lite). This health trend represents a force. a. social b. political c. legal d. technological e. demographic

a. social

The Internet is an example of a: a. technological force. b. social force. c. macroeconomic force. d. demographic force. e. global force.

a. technological force.

Porter's Five Forces model did not recognize one force, which is: a. the power of complement providers. b. the risk of entry by potential competitors. c. the intensity of rivalry among established companies within an industry. d. the bargaining power of suppliers. e. the threat of substitutes.

a. the power of complement providers

Suppliers in an industry are most powerful when: a. there are few substitutes for the products that they sell. b. switching costs are low. c. companies in the industry threaten to enter the suppliers' industry. d. their profitability is significantly affected by the purchases of companies in a particular industry. e. they refrain from entering their customers' industry because of lack of resources.

a. there are few substitutes for the products that they sell.

Which of the following statements is true about rivalry in the context of established companies? a. It significantly reduces the costs of established companies. b. It squeezes profits out of an industry. c. It enables companies to lower their spending on non-price-competitive strategies. d. It forces companies to reduce prices when it is less intense. e. It is unaffected by the demand conditions of an industry.

b. It squeezes profits out of an industry.

Which of the following is true of growth industries? a. They typically have high barriers to entry. b. They tend to be characterized by weak rivalry. c. They are characterized by low demands. d. They increase prices because customers are more aware of the industry's product. e. They inhibit the development of distribution channels.

b. They tend to be characterized by weak rivalry.

Common exit barriers include: a. minimal investment in assets like specific machines. b. emotional attachments to an industry. c. low fixed costs associated with leaving an industry. d. the lack of bankruptcy regulations. e. economic independence of a company

b. emotional attachments to an industry.

Mobility barriers: a. allow industries to change their strategy and compete in that strategic group. b. inhibit the movement of companies between strategic groups in an industry. c. inhibit companies from shifting between suppliers for the raw materials. d. are factors that operate outside of an industry. e. exclude the barriers to entry into a group and the barriers to exit from a company's existing group.

b. inhibit the movement of companies between strategic groups in an industry.

The level of industry demand: a. has little effect on competition in the industry. b. is one of the determinants of the intensity of rivalry in the industry. c. increases when customers exit a marketplace. d. does not impact the market share that established companies hold. e. decreases the rivalry among established companies, when in decline.

b. is one of the determinants of the intensity of rivalry in the industry. c. increases when customers exit a marketplace.

The competitive structure of an industry refers to the: a. number of market segments in the industry. b. number and size distribution of companies in the industry. c. number of consumers in the industry. d. number of manufacturing plants in the industry. e. number of products produced in the industry.

b. number and size distribution of companies in the industry.

An industry's buyers have high bargaining power when: a. they purchase in small quantities. b. switching costs are low. c. it is economically impossible for them to purchase an input from several companies at once. d. the supply industry depends upon buyers for a very small percentage of its total orders. e. the industry is a monopoly.

b. switching costs are low.

Which of the following is NOT one of the factors in the economic forces of the macroenvirornnent? a. Interest rates b. Inflation c. Cultural changes d. Currency exchange rates e. Economic growth rate

c. Cultural changes

Which of the following statements is true about government regulations in the context of entry barriers of an industry? a. Government deregulation in an industry results in significant reduction in competition. b. Government regulation has not constituted a major entry barrier for many industries. c. Falling entry barriers due to government deregulation results in higher competition and lower industry profit rates. d. The threat of new entrants reduces when the government deregulates an industry. e. Companies that enjoy brand loyalty and have significant scale economies are the ones who face major threat of competition due to government deregulation.

c. Falling entry barriers due to goverrnnent deregulation results in higher competition and lower industry profit rates.

Julian was asked to examine the demographic forces facing his employer, a clothing manufacturer. Which of the following factors is Julian most likely to examine? a. Government regulations b. Inflation c. Manufacturing technology d. Age of the population e. Society's growing interest in exercise

d. Age of the population

Which of the following is NOT a barrier to entry? a. Economies of scale b. Brand loyalty c. Absolute cost advantages d. High customer bargaining power e. High customer switching costs

d. High customer bargaining power

Which of the following is currently an embryonic industry? a. Personal computers b. Biotechnology c. Internet retailing d. Nanotechnology e. Wireless communications

d. Nanotechnology

When shopping for clothing such as shirts and jeans, Tyrone only buys products from Eastern Clothing Company even if there are several other companies that offer similar products at lower prices. Tyrone's preference for Eastern Clothing Company demonstrates: a. lack of demand. b. bargaining power. c. risk of entry. d. brand loyalty. e. lack of economies of scale

d. brand loyalty.

Brand loyalty can be created by: a. minimal advertising. b. not using patents to protect products. c. cutting the costs for research and development. d. emphasizing high product quality. e. minimizing after-sales service

d. emphasizing high product quality.

As an industry enters the shakeout stage: a. rivalry among companies declines. b. demand grows at a high rate. c. prices of products increase. d. excess productive capacity emerges. e. new entrants come into the market.

d. excess productive capacity emerges.