CHAPTER 7

Which of the following statements regarding the rarity of diversification is accurate? A) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare. B) A particular economy of scope can only be rare if no other firms are exploiting that economy of scope. C) A particular economy of scope can be rare even if many other firms are exploiting that economy of scope. D) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare but only if the firm is pursuing unrelated diversification.

A) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare.

________ exists when two or more diversified firms simultaneously compete in multiple markets. A) Multipoint competition B) Dynamic competition C) Multipoint cooperation D) Dynamic cooperation

A) Multipoint competition

________ is an example of a less costly-to-duplicate economies of scope. A) Tax advantages B) Core competencies C) Internal capital allocation D) Multipoint competition

A) Tax advantages

Firms pursuing ________ have between 70% and 95% of their sales in a single product market. A) dominant-business diversification B) single-business diversification C) related-constrained diversification D) related-linked diversification

A) dominant-business diversification

When the value of the products or services a firm sells increases as a function of the number of business that the firm operates in, ________ are said to exist. A) economies of scope B) vertical economies C) economies of scale D) diseconomies of scope

A) economies of scope

Which of the following economies of scope is less costly to duplicate? A) employee compensation B) core competencies C) multipoint competition D) exploiting market power

A) employee compensation

A firm has implemented a strategy of ________ when all or most of its activities fall within a single industry and geographic market. A) limited corporate diversification B) related diversification C) unrelated diversification D) related-linked diversification

A) limited corporate diversification

In general, as a source of capital a diversified firm has ________ information about a business that it owns compared to external sources of capital. A) more and better B) the same C) less and inferior D) more but biased

A) more and better

Which type of economies of scope includes shared activities and core competencies? A) operational economies of scope B) financial economies of scope C) anticompetitive economies of scope D) employee and stakeholder incentives for diversification

A) operational economies of scope

When a firm operates in multiple industries simultaneously, it is said to be implementing a A) product diversification strategy. B) product-differentiation strategy. C) geographic market diversification strategy. D) geographic market differentiation strategy.

A) product diversification strategy.

If no other firm in the computer industry were using a diversification strategy similar to Peach Computers', this diversification strategy could be said to be A) rare and costly to duplicate. B) rare and less costly to duplicate. C) common but costly to duplicate. D) common and less costly to duplicate.

A) rare and costly to duplicate.

Firms such as PepsiCo that operate a number of businesses around the world that share a number of inputs, production technologies, or distribution channels but none of whose businesses account for more than 70% of a firm's revenues are said to be implementing a A) related-constrained diversification. B) related-linked diversification. C) dominant-business diversification. D) single-business diversification.

A) related-constrained diversification.

Diversified firms that are exploiting core competencies as an economy of scope but are not doing so with any shared activities are sometimes called ________ diversified firms. A) seemingly unrelated B) unrelated C) semi-related D) link-related

A) seemingly unrelated

Which type of economies of scope is Peach Computers experiencing between its units? A) shared activities B) core competencies C) multipoint competition D) tax advantages

A) shared activities

Limits of activity sharing include A) substantial organizational issues that are often associated with a diversified firm's learning how to manage cross-business relationships and in which failure can lead to excess bureaucracy, inefficiency, and organizational gridlock. B) a significant reduction in an organization's innovation and flexibility. C) substantial organizational issues related to adequately compensating personnel across businesses and setting transfer prices. D) a significant reduction in an organization's ability to meet the needs of any of its customers.

A) substantial organizational issues that are often associated with a diversified firm's learning how to manage cross-business relationships and in which failure can lead to excess bureaucracy, inefficiency, and organizational gridlock.

For multipoint competition to lead to mutual forbearance, A) the threat of retaliation must be substantial and the firms pursuing this strategy must have strong linkages among their diversified businesses. B) the threat of retaliation must be low and the firms pursuing this strategy must have strong linkages among their diversified businesses. C) the threat of retaliation must be low and the firms pursuing this strategy must have weak linkages among their diversified businesses. D) the threat of retaliation must be substantial and the firms pursuing this strategy must have weak linkages among their diversified businesses.

A) the threat of retaliation must be substantial and the firms pursuing this strategy must have strong linkages among their diversified businesses.

One of the limits of the economies of scope that Peach Computers is leveraging in its diversification strategy is A) they may limit the ability of a particular business to meet specific customers' needs. B) they are significantly affected by the way a diversified firm is organized. C) they are not tangible and may be reflected only in the shared knowledge, experience and wisdom across businesses. D) the level and type of diversification that a firm pursues can affect the efficiency of this allocation process.

A) they may limit the ability of a particular business to meet specific customers' needs.

________ are complex sets of resources and capabilities that link different businesses in a diversified firm through managerial and technical know-how, experience and wisdom. A) Managerial competencies B) Core competencies C) Competitive advantages D) Core advantages

B) Core competencies

Which of the following economies of scope is costly-to-duplicate? A) employee compensation B) core competencies C) shared activities D) risk reduction

B) core competencies

A firm implements a ________ when it operates in multiple industries or markets simultaneously. A) vertical integration strategy B) corporate diversification strategy C) business diversification strategy D) product-differentiation strategy

B) corporate diversification strategy

Which of the following economies of scope do not have the potential for generating positive returns for a firm's equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock? A) shared activities B) diversification to maximize the size of a firm C) internal capital allocation D) exploiting market power

B) diversification to maximize the size of a firm

Which of the following economies of scope is costly to duplicate? A) shared activities B) internal capital allocation C) risk reduction D) tax advantages

B) internal capital allocation

Compared to two very risky businesses that have cash flows that are not highly correlated over time and that are operating separately, the risk of a diversified firm operating in those same two businesses simultaneously is A) somewhat higher. B) lower. C) the same. D) substantially higher.

B) lower.

By 2003, Peach Computers' diversification strategy was best characterized as A) unrelated diversification. B) related-constrained diversification. C) related-linked diversification. D) dominant-business diversification.

B) related-constrained diversification.

Firms such as Disney that own and operate businesses that share a limited number of inputs, production technologies or distribution channels are said to be pursuing a ________ corporate diversification strategy. A) related-constrained B) related-linked C) dominant-business D) single-business

B) related-linked

If a diversified firm had three businesses and these companies shared a common marketing and service operation, as well as common technology and development, this would be an example of which type of economy of scope? A) core competencies B) shared activities C) risk reduction D) multipoint competition

B) shared activities

In which type of limited corporate diversification do firms have greater than 95% of their total sales in a single product market? A) dominant-business firms B) single-business firms C) related-constrained firms D) related-linked firms

B) single-business firms

Peach Computers' equity holders, its employees, suppliers and customers along with all of those groups and individuals who have an interest in how Peach Computers performs are referred to as A) focal groups. B) stakeholders. C) supporters. D) stockholders.

B) stakeholders.

When a firm operates in multiple geographic markets simultaneously it is said to be implementing a(n) A) international diversification strategy. B) product-differentiation strategy. C) geographic market diversification strategy. D) geographic market differentiation strategy.

C) geographic market diversification strategy.

Substitutes for exploiting economies of scope in diversification include A) growing and developing independent businesses within a diversified firm and vertical integration. B) vertical integration and strategic alliances. C) growing and developing independent businesses within a diversified firm and strategic alliances. D) strategic alliances and multipoint competition.

C) growing and developing independent businesses within a diversified firm and strategic alliances.

Research over the years has demonstrated conclusively that the primary determinant of the compensation of top managers in a firm is A) not the size of the firm, usually measured in sales, but the economic performance of the firm. B) both the economic performance of the firm as well as the size of the firm, usually measured in sales. C) not the economic performance of the firm but the size of the firm, usually measured in sales. D) neither the economic performance of the firm nor the size of the firm.

C) not the economic performance of the firm but the size of the firm, usually measured in sales.

When diversified firms use the revenues from profitable businesses to subsidize the operations of another business and then set the prices of the subsidized firm's products at a level that is below the subsidized business's cost to produce these items, this is known as ________ pricing. A) dynamic B) monopoly C) predatory D) beneficial

C) predatory

If, when Peach Computers introduced its PeachPit in 2001, the company used its profits in the computer industry to subsidize its operations in the electronics industry and used this subsidy to sell the PeachPit for a price that was less than the cost of producing and selling the MP3 players, this would be an example of A) mutual forbearance. B) escalation of commitment. C) predatory pricing. D) multipoint competition.

C) predatory pricing.

If all of a firm's businesses share the same core competencies, then that firm has implemented a strategy of ________ diversification. A) single-business B) related-linked C) related-constrained D) dominant-business

C) related-constrained

In 2001, Peach Computers' diversification strategy was best characterized as A) related-linked diversification. B) dominant-business diversification. C) single-business diversification. D) related-constrained diversification.

C) single-business diversification.

In 2001, if Peach Computers did not want to employ a diversification strategy to enter the personal electronics industry, it could use which substitute for diversification? A) backward vertical integration B) product differentiation C) strategic alliances D) forward vertical integration

C) strategic alliances

In order for corporate diversification to be economically valuable A) there must be some valuable economy of scope among the multiple businesses in which a firm is operating and it must be more costly for managers in a firm to realize these economies of scope than for outside equity holders on their own. B) there must not be any valuable economy of scope among the multiple businesses in which a firm is operating and it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own. C) there must be some valuable economy of scope among the multiple businesses in which a firm is operating and it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own. D) there must not be any valuable economy of scope among the multiple businesses in which a firm is operating and it must be more costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.

C) there must be some valuable economy of scope among the multiple businesses in which a firm is operating and it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.

Which of the following statements regarding economies of scope is accurate? A) Only firms pursuing single-business diversification can exploit economies of scope. B) Only firms pursuing related-constrained diversification can exploit economies of scope. C) Only firms not pursuing diversification can exploit economies of scope. D) Only diversified firms can exploit economies of scope.

D) Only diversified firms can exploit economies of scope.

________ are substitutes for exploiting economies of scope in diversification. A) Tax havens B) Tax shelters C) Tax freedom D) Strategic alliances

D) Strategic alliances

A common way of thinking about strategy across different businesses within a firm is known as the firm's A) core competency. B) competitive advantage. C) economy of scope. D) dominant logic.

D) dominant logic.

Currently, most scholars believe that exploiting economies of scope through corporate diversification, on average, A) destroyed about 25% of a firm's market value. B) had no impact on a firm's market value. C) destroyed about 55% of a firm's market value. D) increased a firm's market value.

D) increased a firm's market value.

The analysis of firms pursuing a strategy of ________ is logically equivalent to the analysis of business-level strategies. A) unrelated diversification B) related-linked diversification C) related-constrained diversification D) limited corporate diversification

D) limited corporate diversification

A firm that diversifies by exploiting its resources and capability advantages in its original business will have ________ costs than (as) firms that begin a new business without these resource and capability advantages, or ________ revenues than (as) firms lacking these advantages. A) higher; lower B) the same; higher C) lower; the same D) lower; higher

D) lower; higher

When a firm simultaneously implements both a product diversification strategy and a geographic market diversification strategy it is said to be implementing a(n) A) mixed-market diversification strategy. B) unrelated-diversification strategy. C) product-differentiation strategy. D) product-market diversification strategy.

D) product-market diversification strategy.

Shared activities are quite common between both ________ and ________ diversified firms. A) single-business; dominant-business B) related-constrained; single-business C) related-linked; dominant-business D) related-constrained; related-linked

D) related-constrained; related-linked

If one of the reasons that Peach Computers entered into the electronics industry was to offset weakness in the computer industry because when the computer industry was weak, the electronics industry was strong, and vice versa, Peach Computers would be pursuing which economy of scope? A) core competencies B) multipoint competition C) tax advantages D) risk reduction

D) risk reduction

The only economy of scope that an unrelated firm can try to realize is A) core competencies. B) tax advantages. C) multipoint competition. D) risk reduction.

D) risk reduction.

Firms such as General Electric that generate less than 70% of their revenues from a single product market and whose businesses share few, if any, common attributes are said to be pursuing ________ corporate diversification. A) limited B) related-linked C) related-constrained D) unrelated

D) unrelated

If Peach Computers were looking to getting into the business of making telephones, its diversification would be called A) related-linked. B) related-constrained. C) related-corporate. D) unrelated.

D) unrelated.