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
