Midterm ch.3

Which of the following does not contribute to buyers' bargaining power

A high level of differentiation among the products that buyers purchase

For most business enterprises a market is:

An abstract concept from the point of view of competition it is a continuum from a firm's closest competitor towards more distant competitors b. A sociological concept that is defined mainly by convention and institutions c. Geographical concept defined by the location of customers and competitors

The producer of a complementary product can maximize its relative bargaining power by means of:

Commoditizing the market for the complementary good

A key limitation of Porter's five forces model of competition is that:

Competitor's strategies may shape industry structure, rather than structure shaping competition

Airlines' frequent flyer programs and retailer loyalty schemes are both examples of efforts to:

Establish product differentiation by measures that reward customer loyalty

Industries where a decline in demand is most likely to cause industry-wide losses tend to have the following characteristics:

High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs

If an industry earns a return on capital in excess of its cost of capital:

It will attract the attention of potential entrants and, unless protected by high barriers to entry, the return on capital will fall

The core of a firm's business environment is comprised by:

Its relationships with customers, competitors and suppliers

In practice, drawing the boundaries of industries and markets is:

Largely a matter of judgment and experience contingent on the purpose of the analysis

Initiatives to improve an industry's profitability through changing its structure are:

More difficult in fragmented industries than in concentrated industries

Economies of scale are a barrier to entry because:

New entrants face high unit costs either because they enter at sub-optimal scale, or they make a large-scale entry that initially operates with substantial excess capacity

An industry's current profitability:

On its own trends to be a poor predictor of future profitability

Legal requirements that banks, providers of wireless telecommunication services, and taxis must obtain a government issued license before going into business impact the profitability of their respective industries:

Positively because they restrict entry to the industry

A market's boundaries are defined by:

Substitutability on both the demand side and the supply side

The difference between substitute and complementary products may be summarized as follows:

Substitutes reduce the value of a product, whereas complements increase value

Parallel pricing - the tendency for companies in an industry to move prices more or less simultaneously - is typically an indicator of:

The desire of oligopolists to avoid price competition

The suppliers of agricultural products tend to lack bargaining power relative to buyer's because:

The farming industry tends to be fragmented and supply commodity products

The basic premise of industry analysis is that:

The level of profitability within an industry is determined by the systematics influence of the industry structure which determines the intensity of competition in the industry

Bargaining power rests, ultimately, on:

The relative costs that each party would incur from walking away from the deal

Key success factors are:

The sources of competitive advantage within an industry

The profit earned by firms in an industry, are determined by:

The value of the product for customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers

Firms supplying niche markets are often highly profitable because:

They tend to be sufficiently small that a single firm can often establish a dominant position

As the competitors in an industry become more diverse in terms of their goals, cost structures, and strategies, it is likely that:

They will compete more fiercely on price

The most useful approach to forecasting industry profitability in the future is:

To understand how the industry's structure has determined competitive intensity and profitability in the past, then to use information on an industry's changing structure to predict how profitability is likely to change in the future

Identifying key success factors within an industry requires answers to the following questions:

What do customers want and what should the firm do to survive competition?