chapter 16

Under the Five forces framework, how can the market power of customers impact a seller's profitability?

Customers with market power can use their leverage to lower the selling price that sellers charge

Which of the following statements about product differentiation is FALSE?

It is charging a lower price than other sellers

Marcella is a tomato farmer. Under which of the following conditions would she face the most intense competition?

Marcella is one of 1,200 tomato famers who sell in the same tomato market

What distinguishes persuasive advertising from informative advertising?

Persuasive advertising focuses on emotions and provides few facts about the product

What is price competition?

Sellers try to win customers through charging as low a price as possible

In which of the following situations would a company have a lower chance of losing customers when it raises the price of its product?

The product is differentiated across companies

Relationship-specific investments are investments that:

are worth more in the context of a specific business relationship

What protects a business from the threat of entry by potential competitors?

barriers to entry

In differentiating a product, the supply-side consideration is to __________ as possible

be as different from competitors

How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the:

business may lose customers to the substitute good's market unless it lowers price

A search good is a product that:

can easily be evaluated before purchase

Dinesh owns a restaurant. He is able to negotiate lower prices than other restaurants pay with his supplier because he buys in volume and threatens to buy from another supplier. Dinesh is:

exercising bargaining power

According to the Five Forces framework, the __________ the degree of rivalry in an industry, the __________ the average profits will be in the industry

greater; lower

When an input seller has market power in the input market, its customers:

may end up paying a higher price for inputs

When advertising increases brand loyalty for your company's brand, then the company's demand curve becomes:

more inelastic

As a basic rule of thumb, business owners should differentiate their products as much as possible when:

price competition is intense

Marta wants to open a shop specializing in gourmet candies and is having a difficult time finding space to rent in a location where many potential customers will pass by each day. There are only two possible locations that meet Marta's criteria, and several other types of businesses are vying to rent each location. This leads to high rents. What challenge to profitability is Marta facing as she starts her business?

suppliers with bargaining power

When Joe's Manufacturing Company successfully differentiates its product, then from the perspective of consumers:

the output of rival sellers is not a good substitute for Joe's output

Which of the following mergers between two companies would be considered to be a vertical merger?

A fabric mill merges with a pants factory

Which of the following can reduce the incentive of business partners to hold up a company when the company has made relationship-specific investments?

A long-term relationship based on trust exists between the partners and the company