ECON 2410

1. Which real-world market closely approximates perfect competition? (a) Most agricultural markets. (b) Automobile manufacturers. (c) State universities. (d) Cable television services.

a

7 2. What term represents the conduct and performance of firms in the market after entry has occurred? (a) Postentry competition. (b) Postentry actions. (c) Postentry diversification. (d) Postentry strategic decisions.

a

1. What term describes when a firm is using the least-cost production process? (a) Agency efficiency. (b) Technical efficiency. (c) Lean compliant. (d) Economising.

b

3. Benefit proximity refers to which of the following? (a) Competing firms offering products with exactly the same benefit. (b) Cost leading firms offering products with slightly less benefit. (c) Product benefits that cannot easily be differentiated by the consumer. (d) Cost leading firms offering products with slightly more benefit.

b

7 5. How can incumbents legally erect entry barriers around novel and non-obvious products or production processes? (a) Collusive pricing. (b) Predatory pricing. (c) Patents. (d) Price fixing.

c

9. What term best describes a targeting strategy in which the firm offers a variety or related products to a particular class of customers? (a) Broad-coverage strategy. (b) Focus strategy. (c) Customer specialisation. (d) Margin strategy.

c

10. Which of the following is a characteristic of an implicit contract? (a) It is an understanding between parties in a business relationship. (b) It is generally enforceable in court. (c) The threat of losing future business makes implicit contracts not viable. (d) They are typically used in firms that have little relationship with one another

a

2. Which of the following does not tend to affect the threat of entry? (a) Expectations about pre-entry competition. (b) Government protection of incumbents. (c) Consumers highly valuable reputation/consumers are brand loyal. (d) Experience curve.

a

2. Which of the following is false with respect to the strategy of cost leadership? (a) A firm following a strategy of cost leadership is following a generic strategy narrow in scope. (b) A firm can follow a cost leadership strategy through achieving benefit parity by making products with the same B, but at a lower C than its rivals. (c) A firm can follow a cost leadership strategy through achieving benefit proximity by offering a B that is not much less than those of competitors. (d) A firm following a strategy of cost leadership creates more value than its competitors by offering products that have a lower C than those of its rivals

a

3. Brand loyalty _____________. (a) makes the demand curve less price-elastic (b) shifts the supply curve to the left (c) makes the demand curve more price-elastic (d) shifts the demand curve to the left

a

3. Which of the following conclusions can we make about vertical integration with regards to ASSET SPECIFICITY? (a) If asset specificity is significant enough, vertical integration will be more profitable than arm's-length market purchases, even when production of the input is characterised by strong scale economies or when the firm's product market scale is small. (b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope. (c) A firm with a larger share of the product market will benefit more from vertical integration than a firm with a smaller share of the product market. (d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist.

a

4. What type of effect describes how a commitment impacts the present value of the firm's profits, assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change? (a) Direct effect. (b) Tactical effect. (c) Strategic effect. (d) Indirect effect.

a

4. Which of the following factors requires the least consideration when assessing supplier power relative to the downstream industry it sells to? (a) Competitiveness of the output market. (b) Purchase volume of downstream firms. (c) Availability of substitute inputs. (d) Threat of forward integration by suppliers.

a

5 10. The Herfindahl index will be largest for an industry that is _____. (a) a monopoly (b) perfect competitive (c) a duopoly (d) monopolistically competitive

a

5 3. Which of the following is not a characteristic of substitute products X and Y? (a) Customers are indifferent between X and Y. (b) They have the same or similar product performance characteristics. (c) They have the same or similar occasions for use. (d) A price increase of X while keeping the Y's price constant leads to a drop in purchases of X and an increase in purchases of Y

a

5. The reduction of co-ordination and hold-up problems depends on _______. (a) governance arrangements (b) manager contracts (c) required quality of finished product (d) cost of upstream vertical supplies

a

6 2. What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)? (a) Horizontal differentiation. (b) Vertical differentiation. (c) Idiosyncratic differentiation. (d) Spatial differentiation

a

6 4. In the long run, a monopolistically competitive firm ________. (a) earns zero economic profit (b) produces at minimum average cost (c) operates at full capacity (d) All of the above

a

6. Early mover advantage suggests that ________. (a) pioneering businesses are able to obtain higher profits and other benefits as the consequence of early market entry (b) Early mover firms expand more rapidly in international markets than late movers in international markets (c) competing multinational firms enter an important market when a market is growing very fast (d) multinational firms with early mover advantages have greater strategic incentives for investing in technical innovations than later movers

a

7 8. When is predatory pricing a most effective entry barrier? (a) When a firm has a reputation for toughness or competes in multiple markets. (b) When incumbents have long-standing relationships with suppliers and customers. (c) When channels are few and hard to replicate. (d) When marginal costs are low and flooding the market causes large price reductions.

a

8. What type of strategy seeks to serve all customer groups in the market by offering a full line of related products? (a) Broad-coverage strategy. (b) Share strategy. (c) Margin strategy. (d) Generic strategy.

a

8. Which of the following statements is true about a tough commitment? (a) It is bad for competitors. (b) In Cournot competition, elimination of production facilities is an example of a tough commitment. (c) In Betrand competition, a commitment to increase prices is an example of a tough commitment. (d) Tough commitments are always in the best interest of a firm.

a

1. Which of the following is a concept developed by Michael Porter that describes, in broad terms, how a firm positions itself to compete in the market it serves? (a) Value chain. (b) Generic strategy. (c) Benefit leadership. (d) Cost Leadership.

b

10. What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing whether the firm's commitment is likely to result in a product market position in which the firm delivers superior benefits to consumers or operates with lower costs than competitors? (a) Sustainability analysis. (b) Positioning analysis. (c) Flexibility analysis. (d) Judgment analysis.

b

10. Which of the following represents total surplus in the value creation equation? (a) B + C. (b) B - C. (c) P + C. (d) P - C.

b

2. What type of cooperation-inducing strategy is defined as one so compelling that a firm would expect all other firms to adopt it? (a) Backward induction. (b) Focal point. (c) Always aggress. (d) Coordination.

b

5 4. What empirical method generally is used to measure the degree to which products substitute for each other? (a) SSNIP. (b) Cross-price elasticity. (c) Price comparison. (d) Standard Industrial Classification

b

5 8. What term describes a firm that faces little or no competition in one of its input markets? (a) Monopolist. (b) Monopsonist. (c) Oligopolist. (d) Oligopsonist.

b

5. What kind of strategy is one by which a firm maintains price parity with its competitors and profits from its benefit or cost advantage primarily through high price-cost margins, rather than through a higher market share? (a) Generic strategy. (b) Margin strategy. (c) Share strategy. (d) Focus strategy

b

5. What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market? (a) Industry effect. (b) Competitive advantage. (c) Competitive position. (d) Market profitability economics.

b

6 1. What term describes the differentiation of a product when it is unambiguously better or worse than competing products? (a) Horizontal differentiation. (b) Vertical differentiation. (c) Idiosyncratic differentiation. (d) Spatial differentiation

b

6 6. What kind of competition is generally described as quantity competition? (a) Bertrand competition. (b) Cournot competition. (c) Perfect competition. (d) Monopolistic competition

b

6 9. If the firms in an oligopoly collude __________. (a) the profit of the industry is at its lowest (b) the profit of the industry is maximised (c) the industry output is maximised (d) each firm makes a loss

b

7 3. What are the two types of barriers to entry? (a) Legal and strategic. (b) Structural and strategic (c) Price and Size. (d) Price and Structure.

b

7 9. What term describes a situation where two or more parties expend resources battling each other? (a) Predatory pricing. (b) War of attrition. (c) Dumping. (d) Capacity Expansion

b

8. What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following? (a) Competitive advantage. (b) Regression to the mean. (c) Persistent performer. (d) Sustainable firm

b

8. When multiple firms' price-quality positions line up along the same indifference curve offering a consumer the same amount of consumer surplus, what term describes the situation? (a) Consumer surplus. (b) Consumer surplus parity. (c) Price-quality parity. (d) Maximum willingness-to-pay.

b

8. Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remaining portion from independent firms? (a) Forward integration. (b) Tapered integration. (c) Backward Integration. (d) Combined integration

b

9. What term describes a framework used in strategy based on resource heterogeneity which posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile? (a) Persistence of profitability for the firm. (b) Resource-based theory of the firm. (c) Regression to the mean. (d) Capability-based theory of the firm

b

1. What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes? (a) Response strategy. (b) Always cooperate strategy. (c) Tit-for-tat strategy. (d) Trigger strategy

c

1. Which of the following best describes the term, internal rivalry? (a) Divisions competing within a firm for resources. (b) Differing product lines from one manufacturer competing. (c) Firms jockeying for share within a market. (d) Firms competing for resources to produce goods.

c

10. What term best describes a resource that cannot 'sell itself' to the highest bidder? (a) Profit maximising. (b) Scarce. (c) Imperfectly mobile. (d) Value-creating.

c

2. The word monopolistic in monopolistic competition refers to the fact that _________. (a) there are many firms in the market (b) there are high barriers to entry (c) firms have some control over price (d) there is only one firm in the market

c

4. Which of the following conclusions can we make about vertical integration with regards to PRODUCT MARKET SHARE AND SCOPE? (a) If asset specificity is significant enough, vertical integration will be more profitable than arm's-length market purchases, even when production of the input is characterised by strong scale economies or when the firm's product market scale is small. (b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope. (c) A firm with multiple product lines will benefit more from being vertically integrated in the production of components for those products in which it can achieve significant market scale. (d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist

c

5 2. What criterion developed by the DOJ is used to identify all potential competitors within the market? (a) Market competition criterion. (b) DOJ competition criterion. (c) SSNIP criterion. (d) DOJ market criterion.

c

5 5. What is a catchment area? (a) The area of a firm's customers as defined by traditional county lines. (b) The area a firm's customers shop due to idiosyncratic reasons. (c) The contiguous area from which a firm draws most of its customers. (d) The area a firm operates in which it has no competition

c

5 6. What is defined by the number and size distribution of the firms in a market? (a) Herfindahl index. (b) Market share. (c) Market structure. (d) Numbers-equivalent of firms

c

5 9. Which U.S. agency is responsible for preventing anticompetitive conduct? (a) Securities and Exchange Commission. (b) Competition Authority. (c) Department of Justice. (d) Office of Fair Trading

c

5. Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price? (a) Price leading. (b) Predatory pricing. (c) Price umbrella. (d) Price lining

c

6 7. The word 'monopolistic' in monopolistic competition refers to the fact that ______. (a) there are many firms in the market (b) there are high barriers to entry (c) firms have some control over price (d) there is only one firm in the market

c

6. What is the perceived benefit of a product per unit consumed minus the product's monetary price? (a) Value creation. (b) Competitive advantage. (c) Consumer surplus. (d) Maximum willingness-to-pay.

c

6. What type of good is one whose quality is relatively easy to evaluate before purchase? (a) Automobile. (b) Appliance. (c) Search good. (d) Consumer package good.

c

7 1. What type of firm is one that is already operating in a particular market? (a) Market leader. (b) Entrant. (c) Incumbent. (d) Market follower.

c

7 6. 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? (a) Deterred Entry. (b) Judo Entry. (c) Accommodated Entry. (d) Blockaded Entry

c

7. 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 organisation of the transaction where the two firms are independent, each with control over its own assets? (a) Backward integration. (b) Forward integration. (c) Nonintegration. (d) Contractually unbound.

c

7. What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges? (a) Price matching clause. (b) Best price clause. (c) Most favored customer clause. (d) Competitive price clause.

c

7. What type of good is one whose quality can be assessed only after the customer has used it for a while? (a) Automobile. (b) Experience good. (c) a and b. (d) None of the above.

c

9. What happens when the process by which governance develops exhibits path dependence? (a) Governance arrangements split decision rights and controls between two related firms. (b) Governance arrangements are optimal. (c) Past circumstances could exclude certain possible governance arrangements in the future. (d) The firm will split into two entities to reduce the governance issues created

c

9. Which of the following represents consumer surplus in the value creation equation: (B-P) + (P-C)? (a) B. (b) B - C. (c) B - P. (d) P - C.

c

10. According to Porter, if an organisation does not follow either a cost reduction strategy or a differentiation strategy they are _________. (a) hybrid (b) no frills (c) specialised (d) stuck in the middle

d

2. Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm's length market transaction as the level of asset specificity increases? (a) The cost difference increases with greater asset specificity. (b) The costs are negative for all levels of asset specificity. (c) Scale-based advantages of outside suppliers are likely to be stronger with greater asset specificity. (d) The cost difference declines with greater asset specificity

d

3. What is a grim trigger strategy in a two firm repeated game? (a) A strategy where a firm will always aggress regardless of how the other firm acts. (b) A strategy where a firm will always cooperate regardless of how the other firm acts. (c) A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes. (d) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses.

d

3. Why are suppliers in a competitive upstream market said to have "indirect power"? (a) They are always concentrated. (b) Their customers are always locked into relationships with them. (c) The price they charge never depends on supply and demand in the upstream market. (d) They can sell their services to the highest bidder.

d

4. What kind of strategy is one by which a firm exploits its benefit or cost advantage through a higher market share rather than through high price-cost margins? (a) Pricing strategy. (b) Focus strategy. (c) Generic strategy. (d) Share strategy.

d

5 1. Which of the following is the definition of "competitors?" (a) Firms that manufacture similar products. (b) Firms located in geographic proximity to each other. (c) Firms that sell products to the same group of buyers. (d) Firms whose strategic choices directly affect one another

d

5 7. Which of the following market structures generally has a Herfindahl index at 0.6 and above (usually having light competition, unless threatened by entry)? (a) Perfect competition. (b) Monopolistic competition. (c) Oligopoly. (d) Monopoly

d

5. Powerful buyer exist when ________. (a) there are many buyers and switching costs are high (b) the product represent a small share of the buyer's total cost (c) the product is critical to the buyer (d) switching costs are low and there are few buyers

d

6 3. What group/type of preferences describes when tastes differ markedly from one person to the next and result in horizontal differentiation? (a) Search preferences. (b) Horizontal preferences. (c) Consumer preferences. (d) Idiosyncratic preferences

d

6 5. In the short run a monopolistic competitor ___________. (a) produces at minimum efficient scale (b) produces where P = AC (c) sets P = MC (d) sets MR = MC

d

6 8. Monopolistic competition results in ________. (a) allocative efficiency (b) production efficiency (c) marginal cost pricing (d) some production inefficiency

d

6. 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? (a) Asset specificity. (b) Non-contract rights of ownership. (c) Control rights agreement. (d) Residual rights of control

d

6. Why do price-sensitive buyers tend to harm cooperative pricing in a market? (a) They cause an increase in detection lags because competitor prices become more difficult to monitor. (b) There is a resultant decrease in the frequency of interaction between competitors. (c) There is an increase in the probability of misreads. (d) There is an increase in temptation to cut price, even if competitors are expected to match.

d

7 4. What type of entry exists if structural barriers are so high the incumbent need do nothing to deter entry? (a) Deterred Entry. (b) Judo Entry. (c) Accommodated Entry. (d) Blockaded Entry

d

7 7. Which of the following is a potential risk of a brand umbrella? (a) The brand umbrella reduces the incumbents sunk cost of introducing a new product. (b) The brand umbrella allows an incumbent offset uncertainty about the quality of a new product. (c) A brand umbrella may make suppliers and distributors more willing to enter relationship specific investments in or sell credit to incumbents. (d) If a new product under the umbrella fails, consumers may become disenchanted with the entire brand.

d

7. 10. Which of the following is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity? (a) The investment in excess capacity must be sunk prior to entry. (b) The incumbent should have a sustainable cost advantage. (c) Market demand growth should be slow. (d) The excess capacity investment must be recoverable prior to entry

d

7. The steepness (slope) of an indifference curve indicates which of the following? (a) The tradeoff between consumer surplus and producer surplus. (b) The change in price holding product benefit constant. (c) The change in benefit holding price constant. (d) The tradeoff a consumer is willing to make between price and quality.

d

7. Which of the following is an example of an early-mover advantage? (a) Developing intangible barriers to imitation (b) Exploiting market size and scale economies (c) Legal barriers to imitation (d) Building networks of complementors

d

9. Which of the following commitment strategies involves soft commitment postures, strategic complements for the stage 2 tactical variables, a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader? (a) Top Dog. (b) Lean and Hungry Look. (c) Fat-Cat Effect. (d) Weak Kitten

d

6 10. Consider a market in which price and total quantity demanded are related as follows: P = 40 - Q. For two firms producing with identical marginal costs of 10, the Bertrand equilibrium quantities will be __________. (a) 15 units in total (b) 40 units in total (c) 5 units per firm (d) 15 units per firm

d (P = MC ----> P1= P2= 10 10 = 40 - Q ---> Q = 30 ---> Q1& Q2= 15)