MGT 491 OL Ch.3

When applying the five forces model, the first step should ideally be:

defining the relevant industry.

A fragmented industry is made into a consolidated industry through:

horizontal mergers and acquisitions .

Shield Autos Inc. has newly launched a luxury car into the European market. Which of the following would most likely NOT be a complement to the car?

A premium car manufactured and sold by Mova Autos Inc., a rival company

Which of the following best illustrates a firm operating in a monopolistically competitive industry?

An automobile manufacturer uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers.

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Espa-ola (AVE) in 2008?

Any of the five forces on its own, if sufficiently strong, can extract industry profitability.

How can a firm change its industry structure from monopolistically competitive or oligopolistic to a near monopoly?

By developing proprietary technology

Which of the following is a feature of a monopolistically competitive industry?

Differentiated products

Given the industry structure in the automobile business, entering the auto manufacturing industry doesn't seem advisable. Yet Tesla Motors is joining the fray. Rather than attempting to compete head-on in internal combustion engines, Tesla Motors is entering the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?

Economies of scale

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?

If the industry has recently become deregulated

Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?

In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.

With the emergence of smartphones, users no longer have to carry a separate music player, a video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as?

Industry convergence

In the 1950s, in response to extreme forms of nationalism and the resulting world wars that had devastated Europe, the first steps were taken to create a supra-national EU. In 1992, after almost 40 years of continued economic integration, peace, and prosperity, the European leaders initiated further steps toward political economic integration. Which of the following represents one of the steps the European leaders initiated?

Introducing a common currency

True West Airlines Inc. follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?

Jet King Airlines Inc., which follows a low-cost strategy

_____ are best described as industry-specific factors that separate one strategic group from another.

Mobility barriers

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?

Natural monopoly

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.?

Network effects

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?

Oligopoly

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL framework

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?

Perfect competition

In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true?

Samsung's smartphones increase in value when they are pre-installed with Google's Android system.

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?

Since suppliers of its key sources are few, the bargaining power of suppliers is high.

Which of the following forces was NOT originally a part of Michael Porter's fives forces model?

Strategic role of complements

Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry?

Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry.

In which of the following situations is the power of suppliers high in an industry?

Suppliers' industry is more concentrated than the industry it sells to.

Which of the following external forces is a part of a firm's task environment?

The composition of the strategic group to which the firm belongs

Due to economic regression in United Filipia, the profitability of the large conglomerate Blue Wing Products Inc. (BWP) was poor. An analysis of the company's business showed that the company could become profitable if it divested a few strategic business units under its banner. From which of the following businesses would BWP find it most easy to exit?

The e-commerce retail business where investments on assets are low

Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services?

The firms can differentiate their product offerings.

Which of the following is most likely an implication of new firms entering an industry?

The incumbent firms will spend more to satisfy their existing customers.

Which of the following represents an economic factor in a firm's external general environment?

The stage of the business cycle that the country is in

Bright Billion Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Bright Billion Inc. find it most difficult to exit?

The steel industry in which the company has obligations like severance pay toward employees

While Burger Cult Inc. operates in a monopolistically competitive industry, Citizen Telecom Inc. operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true?

The threat of new entrants will be higher for Burger Cult Inc. than Citizen Telecom Inc.

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?

The threat of substitutes

Earlier, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the Internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information?

The travel industry changed from a consolidated structure to a fragmented one.

Which of the following is a characteristic of a fragmented industry?

There are many small firms.

When is the rivalry among existing competitors in an industry likely to be more intense?

When firms make strategic commitments to compete in an industry

Which of the following features about a buyer indicates that the buyer has high bargaining power?

When the buyer operates in an industry where products are undifferentiated.

Which of the following would most likely NOT indicate that sellers are a strong competitive force in an industry?

When the buyers' cost of switching to substitutes is low

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?

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.

A key feature of an oligopoly is that the competing firms _____.

are interdependent

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.

complementor

In an industry, the threat of entry is high when:

capital requirements are low.

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:

co-opetition

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 _____.

cut-throat competition

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

demographic trends

The final step in industry analysis is to:

draw a strategic group map.

In an industry, the rivalry among existing competitors is high when:

incumbent firms are highly committed to the business.

Economies of scale are cost advantages that accrue for firms with:

larger output

Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n) _____.

monopolistically competitive industry

During periods of high industry growth:

price competition among firms frequently decreases.

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers.

price-cutting

Home Cart, Home Essentials, Good Store, and Price King are all departmental stores that compete for advantage against each other through everyday low-pricing and discounts on bulk purchases. All the four stores cater to the needs of highly price-sensitive customers. Thus, together Home Cart, Home Essentials, Good Store, and Price King form a _____.

strategic group

The relative bargaining power of suppliers is high when:

suppliers provide products that are differentiated.

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 _____.

switching cost

A firm's strategic position is likely to be strong when:

the gap between the value the firm's product generates and the cost to produce it is large.

Buyers are highly price sensitive when:

they earn low profits or are strapped for cash.

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:

threat of new entrants is most likely low.

The primary objective of Porter's five forces model is to:

understand the profit potential of different industries.