ECO4104 Exam 3

Describes a decision that has a long-term impact and is difficult to reverse

Dedicated investment

What type of curve can be used to describe the set of price-quality combinations that yields the same consumer surplus to an individual

Indifference curve

What concept developed by Brandenburger and Nalebuff as a counterpart to Porter's five-forces consists of suppliers, customers, competitors and complementors?

Value net

What term describes the process of using market prices of unfinished and semi-finished goods to estimate the incremental value-created by distinctive parts of the value chain?

Value-added analysis

What is true about hospital industry profits from 1980 to 2000 and a five forces analysis?

Virtually every factor caused profits to decrease

What process involves using computer simulations to track the likely competitive implications of pricing and investment decisions over many years

War gaming

Which of the following is a resource

Workers with firm-specific expertise or know-how

Which of the following factors should be considered when assessing complements and substitutes

a) Availability of close substitutes and/or complements b) Price-value characteristics of substitutes/complements c) Price elasticity of industry demand

What term refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers?

Buyer power

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?

Competitive Advantage

What requires the least consideration when assessing supplier power relative to the downstream industry it sells to?

Competitiveness of the output market

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?

Consumer surplus parity

What is NOT a feature of selective contacting that intensify internal rivalry

Contracted with hospitals that patients were most loyal to

Situtation in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game

Cooperative pricing

Benefit proximity refers to..?

Cost leading firms offering products with slightly less benefit

Products for which consumers cannot easily evaluate quality even after purchasing and using product are called

Credence goods

What term best describes a targeting strategy in which the firm offers a variety or related products to a particular class of customers?

Customer Specialization

What is not a barrier to entry in professional sports markets?

Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped

What type of strategy seeks to serve all customer groups in the market by offering a full line of related products?

Broad-coverage strategy

What is the perceived benefit of a product per unit consumed minus the product's monetary price?

Consumer Surplus

What 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?

Fat-Cat Effect

Which of the following best describes the consumer's shopping problem

Finding the seller that offers the highest value B-P

What best describes "internal rivalry"

Firms jockeying for share within a market

Type of cooperation-inducing strategy is defined as one so compelling that that a firm would expect all other firms to adopt it

Focal point

Under what type of strategy does a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both?

Focus strategy

What is generally thought of as a supplier in the hospital industry?

Hospital-based physicians

What term coined by Michael Porter describes a tool that can be used to show how nearly every industry can be broken down into smaller pieces known as segments?

Industry segmentation matrix

What condition do NOT tend to heat up price competition

Products have differentiated buyers have high switching costs

Products for which consumers can easily obtain the information required to compare alternatives called

Search goods

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?

Share strategy

What is a capability

Sourcing skills

What are the five-sources of framework

Supplier Power Internal Rivalry Buyer Power Substitutes and Complements Internal rivalry entry

What are components of the Value Net

Suppliers, Customers, Competitors, Complementors

What is NOT a common characteristic of capabilities

There are easy to reduce to simple algorithms or product guides

What entity as a supplier has the most substantial power over manufacturers in the commercial aircraft market?

Unions

What term describes a decision that has a short-term impact and is easy to reverse?

a) Dedicated investment b) Strategic commitment c) Critical choice d) Market investment e) None of the above

What are potential limitations of the five-fources framework

a) It pays little attention to factors that might affect demand b) It focuses on a whole industry rather than on individual firms that may occupy unique positions that insulate them from some competitive forces c) The framework does not explicitly account for the role of government, except when government is a supplier or buyer e) The framework is a qualitative analysis method

What might a firm not be able to react quickly to competitors pricing moves

a) Lags in detecting competitors' prices b) Infrequent interactions with competitors c) Ambiguities in identifying which firm among a group of firms in a market is cutting price d) Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand

Cooperative pricing is helped by which of the following situations

a) Price following b) Advance announcement of price changes c) Price leadership d) Most favored customer clauses e) Uniform delivered prices

Which of the following practices can help firms facilitate cooperative pricing

a) Price leadership b) Advance announcement of price changes c) Price following d) Most favored customer clauses e) Uniform delivered prices

Which of the following is a component of the Value Net

a) Suppliers b) Customers c) Competitors d) Complementors

Which of the following is false with respect to the strategy of cost leadership?

A firm following a strategy of cost leadership is following a generic strategy narrow in scope

What best describes a tit-for-tat strategy

A firm is prepared to match whatever change in strategy a competition makes

What is a grim trigger strategy in a two firm repeated game?

A strategy in which a firm initially cooperates then aggresses for the rest of the game as soon as the opponent agresses

What is NOT a way teams "collude" within professional sports markets

Agreeing on ticket pricing

Which set of advice below should a manager disregard when when seeking pricing stability that is least likely to suffer from antitrust legislation

Always share analyses of probably competitive reactions

What represents consumer surplus in the value creation equation, (B-P) + (P-C)?

B-P

What represents total surplus in t he value creation equation, (B-P) + (P-C)?

B-P

Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?

Demand volatility is an especially serious problem when the production involves substantial fixed costs

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?

Direct effect

What term best describes a firm informing customers about a product's benefits?

Disclosure

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?

Duopoly

In which of the following ways can entry erode incumbents' profits?

Entrants decrease market concentration

In what way can entry erode incumbents profits

Entrants decrease market concentrations

What does NOT tend to affect the threat of entry

Expectations about pre-entry competition

What type of good is one whose quality can be assessed only after the customer has used it for awhile

Experience good

Products for which consumers cannot daily compare product characteristics and value informations from others are called

Experience goods

What is another term for a "win-win" business opportunity

Gains from trade

What professional sports complement poses the biggest dilemma

Gambling

What is true about a tough commitment

It is bad for competitors

What is true about a soft commitment

It is good for competitors

What factor requires the least consideration when assessing supplier power relative to the upstream industry in which it buys raw materials?

Number of competitors in downstream market

What best describes a characteristic of geographic specialization focus strategies?

Offers a variety of products and/or sells to a variety of customer groups within a narrow geography

Which of the following is an example of a market where barometric price leadership occurs

Prime-rate loan

What is a characteristic of an experience good?

Quality can be assessed only after the customer has used it for a while

What is NOT a significant entry barriers in the commercial airframe manufacturing market?

Raw materials and labor

What type of potion exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future

Real option

What factor could NOT intensify internal rivalry in the Chicago hospital market?

Relatively small number of doctors

Select the letter corresponding to the best answer. For a given consumer, any price-quality combination along the indifference curve yields the _______________.

Same consumer surplus

What type of good is one whose quality is relatively easy to evaluate before purchase

Search good

What term refers to the ability of firms to negotiate purchase prices that extract higher profits from buyers?

Seller Power

When consumers learn about many products at once, it is known as a:

Simultaneous search

What term coined by Michael Porter describes a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process fails to achieve either a cost advantage or a benefit advantage?

Struck in the middle

How did European governments help Airbus aggressively pursue a 50% market share in its early years of operation?

Subsidies

What is the most likely substitute for commercial aircraft travel between Chicago and Tokyo?

Teleconferencing

How much revenue a firm brings in by improving the quality of a product such that more consumers want to buy it depends on which two factors?

The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold

Consumer surplus is measured as which of the following

The perceived benefit of a product per unit consumed minus the product's monetary price

Why are supplies in a competitive upstream market said to have "indirect power"

They can sell their services to the highest bidder

Why do price-sensitive buyers tend to harm cooperative pricing in a market

This is an increase in temptation to cut price, even if competitors are expected to match

Describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes

Trigger Strategy

What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself

Uniform delivered pricing

What is one way to measure a firm's willingness-to-pay

Value added analysis

What term is a concept, developed by Michael Porter, which describes the activities within firms and across firms that add value along the way to the ultimate transacted good or service?

Value chain

What best describes a focus strategy?

When a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both

What trend has helped reduce the pricing rivalry that had intensified by the late 1990s?

Hospitals Consolidated

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

Most favored customer clause

Which of the following is a complement to professional sports?

Gambling

What is a concept developed by Michael Porter that describes, in broad terms, how it positions itself to compete in the market it serves?

Generic strategy

What term refers to the situation in the used car market where owners are more anxious to sell low-quality cars that high-quality cars?

Lemons market

Price competition is increased when which of the following occurs?

Many sellers in the market

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?

Margin strategy

What term describes the price at which a consumer is indifferent between buying a product and going without it?

Maximum willingness-to-pay

What represents producer surplus in the value creation equation, (B-P) + (P-C)?

P-C

What is generally thought of as a buyer in the hospital industry

Patients

Who are the most powerful suppliers in professional sports?

Players unions

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?

Positioning analysis

Describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price

Price umbrella

What is a trend that Chicago area hospitals should least likely be worried about with respect to pricing?

There has been considerable consolidation (hospital mergers) in regional submarkets, including the city of Chicago and the important North Shore suburbs

Substitutes erode profits because why

Substitutes divide demand and drive up internal rivalry

The steepness of an indifference curve indicates which of the following

The tradeoff a consumer is willing to make between price and quality