Chapter 3

In an industry, the threat of entry is high when: A) expected returns are high. B) capital requirements are low. C) technological know-how is industry specific. D) switching costs are high.

B

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A) If the capital requirements in the industry are high B) If the industry has recently become deregulated C) If the company is able to put up a credible threat of retaliation D) If the customer switching costs in the industry are high

B

In the ________ developed by Michael Porter, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes. A) VRIO framework B) five forces model C) value chain analysis D) PESTEL framework

B

Which of the following represents an economic factor in a firm's external general environment? A) The bargaining power of the firm's suppliers and buyers B) The government regulations and laws in the country in which the firm exists C) The values and norms prevalent in the society in which the firm operates D) The stage of the business cycle that the country is in

D

________ is best described as cooperation by competitors to achieve a strategic objective. A) liquidation B) amalgamation C) conglomeration D) co-opetition

D

3T Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all 3T users are free. When a person switches to a 3T network, his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages. In addition, an existing user who gets a new user to register with 3T Inc. is given a free wireless connection. This has helped to keep competition away from 3T. In this scenario, which of the following factors is acting as an entry barrier for 3T Inc.? A) network effect B) economies of scale C) high capital requirement D) high fixed costs

A

A company is best described as a ________ to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service. A) complementor B) shareholder C) competitor D) strategic equivalent

A

A firm's strategic position is likely to be strong when: A) the gap between the value the firm's product generates and the cost to produce it is large. B) all the five forces in Porter's model are strong. C) the entry barriers within the industry it operates in are low and the exit barriers are high. D) its suppliers and vendors can easily forward integrate and buyers can backward integrate.

A

Balmia Ammunition Inc., a firm controlled and managed by the government of Balmia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate? A) monopoly B) oligopoly C) perfect competition D) monopolistic competition

A

Competitive rivalry based solely on ________ is destructive to firms as it transfers most of the value created in the industry to the customers. A) price-cutting B) promotional campaigns C) new product releases D) product differentiation

A

Economies of scale are cost advantages that accrue for firms with: A) larger output B) low employee turnover C) high capital risks D) high fixed costs

A

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? A) oligopoly B) perfect competition C) monopolistic competition D) monopoly

A

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because: A) entering the aircraft manufacturing industry requires huge capital investments. B) there is expected to be a huge return on investment within this industry. C) entering the aircraft manufacturing industry means violating government policies. D) there is no credible threat of retaliation from the incumbents.

A

In which of the following industry competitive structures do selling firms have the lowest pricing power? A) perfect competition B) monopoly C) oligopoly D) monopolistic competition

A

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate? A) Legal factors B) Sociocultural factors C) Technological factors D) Ecological factors

A

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? A) perfect competition B) oligopoly C) monopoly D) monopolistic competition

A

Which of the following do the sociocultural forces in a firm's external environment best represent? A) The family size of the firm's target market B) The laws protecting small enterprises in a nation C) The rate of employee attrition within the firm D) The interest rates prevalent in an economy

A

Which of the following is an implication of low interest rates? A) Consumer demand will increase. B) Economic growth rate will fall. C) Firms will invest less in future growth. D) Cost of capital for firms will be high.

A

Which of the following is most likely an implication of new firms entering an industry? A) The incumbent firms will spend more to satisfy their existing customers. B) The rivalry among existing competitors will reduce. C) The industry's overall profit potential and sales will increase. D) The bargaining power of buyers will reduce.

A

Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services? A) The firms can differentiate their product offerings. B) The competition in the industry is insignificant. C) The number of buyers in the industry is small. D) The entry barriers in the industry are extremely high.

A

How can a firm change its industry structure from monopolistically competitive or oligopolistic to a near monopoly? A) By implementing frequent price-cuts B) By developing proprietary technology C) By decreasing its pricing power D) By reducing the entry barriers in its industry

B

Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry, while at the same time Samsung and Google are increasingly becoming competitive with one another. This scenario best illustrates the process of: A) monopolization B) co-opetition C) perfect competition D) conglomeration

B

The _______ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment A) VRIO framework B) PESTEL framework C) BCG matrix D) SWOT Analysis

B

The relative bargaining power of suppliers is high when: A) suppliers depend heavily on the industry for a large portion of their revenues. B) suppliers provide products that are differentiated. C) incumbent firms can credibly threaten to backward integrate into the industry. D) incumbent firms face low supplier switching costs.

B

The telecom industry in the country of Andalus is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the: A) entry barriers are most likely non-existent. B) threat of new entrants is most likely low. C) threat of substitutes is most likely high. D) bargaining power of buyers is most likely low.

B

The telecommunication industry of United Canava is primarily dominated by three large firms, AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in? A) monopolistic competition B) oligopoly C) monopoly D) perfect competition

B

When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger? A) the availability of complements B) the threat of substitutes C) the emergence of entry barriers D) the bargaining power of suppliers

B

Which of the following features about a buyer indicates that the buyer has high bargaining power? A) When the buyer cannot credibly threaten to backwardly integrate into the industry. B) When the buyer operates in an industry where products are undifferentiated. C) When the buyer faces high switching costs. D) When the buyer cannot purchase specific products from other sellers.

B

Which of the following is a drawback of Porter's five forces model? A) The model describes competition narrowly as a firm's closest competitors. B) Managers cannot determine the changing speed of an industry or the rate of innovation. C) The model fails to consider that threat of substitutes can come from outside a given industry. D) It fails to provide a basis for deriving implications for a firm's strategic position within an industry.

B

While industry forces have been favorable for a long time in the U.S. automotive industry, recent dynamics have lowered the profit potential of competing in this industry and thus reduced its attractiveness. The continued success of Tesla Motors in the industry will depend on other firm and industry factors. Which of the following represents one such factor that directly affects Tesla Motors? A) There is a lack of balance in demand and supply: demand far exceeds capacity within the industry. B) Since suppliers of its key sources are few, the bargaining power of suppliers is high. C) Since individual buyers do not have many choices, their bargaining power is low. D) There is a noticeable absence of complementary products and services for the industry.

B

A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so (C). A) incumbency B) threat of entry C) Strategic position D) attribution rate

C

Beans Inc. operates in a perfectly competitive agricultural industry. Classica Apparel Inc., in contrast, operates in a monopolistically competitive industry. Keeping this information in mind, which of the following statements is true? A) While Beans Inc. will communicate the degree of product differentiation through advertising, Classica Apparel Inc. will need no advertising. B) Beans Inc. will face competition from many sellers, whereas Classica Apparel Inc. will be the only seller in the market. C) While Classica Apparel Inc. will have the power to set the prices for its products, Beans Inc. will have little or no ability to do so. D) Beans Inc. will have many buyers for its products, whereas Classica Apparel Inc. will have very few buyers for its products.

C

Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of ________. A) profitability increases B) perfect competition C) cut-throat competition D) natural monopolies

C

First Ledger Inc., an auditing company, replaced its existing accounting software with new accounting software from another supplier. Since the new software has different features and abilities, First Ledger Inc. has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents First Ledger Inc.'s ________. A) octroi charge B) opportunity cost C) switching cost D) Exercise duty

C

In Galvania Republic, the federal government owns and manages all the nuclear power plants. This is because the business would not be profitable if there was more than one supplier in the nuclear power industry. Which of the following industry competitive structures does the scenario best illustrate? A) perfect competition B) oligopoly C) natural monopoly D) monopolistic competition

C

In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true? A) Google accounts for a large quantity of Samsung's overall sales. B) Samsung apps are tailored exclusively for Google smartphones and tablets. C) Samsung's smartphones increase in value when they are pre-installed with Google's Android system. D) Google's smartphones increase in value because they face strong buying power from Samsung.

C

In which of the following situations is the power of suppliers high in an industry? A) Suppliers offer products that are undifferentiated. B) Suppliers can credibly threaten to backward integrate into the industry. C) Suppliers' industry is more concentrated than the industry it sells to. D) Suppliers depend heavily on the industry for their revenues.

C

Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry? A) Entry barriers in the industry are high resulting in hardly any new airlines popping up. B) Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry. C) Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. D) Suppliers have weak bargaining power because they offer products that are not differentiated.

C

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through ________. A) crowdsourcing B) product differentiation C) backward integration D) forward integration

C

Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers? A) New entrants in the automotive industry expect that incumbents will not or cannot retaliate. B) Few industrial products are as easy to build as cars powered by internal combustion engines. C) Car manufacturers require large-scale production in order to be cost-competitive. D) New auto companies create electric cars powered by simpler motors and gearboxes.

C

Which of the following is a feature of a monopolistically competitive industry? A) a single firm B) high entry barriers C) differentiated products D) no pricing power

C

Which of the following is a feature of an oligopolistic industry structure? A) Standardized or undifferentiated products B) Limited pricing power C) High entry barriers D) Many small sellers

C

Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure? A) Competing against each other through lifestyle advertisements B) Competing against each other through new-product introductions C) Competing against each other through price-cutting D) Competing against each other through product differentiation

C

During periods of high industry growth: A) rivals are focused on taking market share away from one another. B) firms indulge in intense promotional campaigns. C) new product releases with minor modifications become common. D) price competition among firms frequently decreases.

D

In a firm's external environment, ________ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class. A) Ecological trends B) Economic trends C) Politcal trends D) Demographic trends

D

The primary objective of Porter's five forces model is to: A) break down a firm's value chain activities into primary and support. B) replace a firm's competitive advantage with competitive parity. C) reduce the gap between the value of a firm's product and its cost of production. D) understand the profit potential of different industries.

D

When applying the five forces model, the first step should ideally be: A) assessing the overall industry structure. B) drawing a strategic group map. C) identify the underlying drivers of each force. D) defining the relevant industry.

D

Which of the following statements is NOT true about the five forces in Porter's competitive analysis model? A) The relative strengths of the five forces that shape competition are context-dependent. B) Competition in the model is described as the tug-of-war between the five forces to capture as much as possible of the economic value created in an industry. C) An analysis of the five forces provides the basis for how a firm should position itself to gain and sustain a competitive advantage. D) The stronger the five forces in an industry, the greater the industry's profit potential.

D