GLB Capstone Midterm (Chapter 3)

Which of the following are examples of economies of scale? (Check all that apply.)

- Spreading fixed costs over more units - Having more negotiating power vis-à-vis suppliers

Which of the following are important sources of entry barriers? (Check all that apply.)

- economies of scale - government policy - network effects - credible threat of retaliation - capital requirements

Which of the following does the five forces model to help firms do?

- gain and sustain a competitive advantage - determine the profit potential of different industries

An industry analysis provides which of the following? (Check all that apply.)

- insight into a firm's strategic position within an industry - the level of profitability that can be expected for the average firm in the industry - a rigorous way of identifying the industry's profit potential

Through use of the PESTEL model, firms are able to do which of the following? (Check all that apply.)

- monitor external factors - evaluate external trends

Which of the following are characteristics of a monopolistically competitive industry? (Check all that apply.)

- the ability to raise prices for differentiated products - a differentiated product - obstacles to entry

sociocultural factors

Captures a society's cultures, norms, and values.

Network Effect

Describe the positive effect that one user of a product or services has on the value of the product or service for other users.

Which of the following statements is likely to be true about a fragmented industry?

It consists of small firms.

Which of the following statements about Airbnb is correct?

It handles more accommodations than the three biggest hotel chains combined.

Which statement best describes the rivalry among existing competitors in the airline industry?

It is intense due to the pressures created by industry forces.

Consumers tend to buy homes, automobiles, and computers when interest rates are ____ because credit is inexpensive.

Low

If the US dollar depreciates compared to the euro, it will take ______ dollars to buy one euro.

More

When a person that has been using a PC with a Microsoft Windows operating system starts using an Apple computer (which has a different operating system), that person will incur significant customer ______________.

Switching cost

Which statement about the five forces that shape competition is true?

Their strengths are context-dependent.

True or false: The relative strengths of the five forces that shape competition are largely dependent on the context.

True

When is the threat of entry high

When restrictive government policies do not exist or when industries become deregulated

The external forces called technological factors ______.

capture the application of knowledge to create new process and products

Technological Factors

capture the application of knowledge to create new processes and products

In Porter's model, there are five key ______ forces, including threat of entry, power of suppliers, and threat of substitute products.

competitive

New firms have been established in the airline and telecommunications industries after ______.

deregulation

Capital Requirements

describes the "price of the entry ticket" into a new industry. Frequently related to economies of scale, capital requirements may encompass investments to set up plants with dedicated machinery, run a production process, and cover start-up losses.

It might be a good idea to expand or upgrade a firm's human capital base during a ______, because unemployment is high and therefore human capital is abundant and wages usually _____.

downturn; fall

When companies seek ways to recharge car batteries in a sustainable way, it is an example of ______ factors creating business opportunities.

ecological

Growth rates, interest rates, and levels of employment would be considered ______ factors in a firm's general environment.

economic

Exit barriers are composed of ______ factors.

economic and social

Obstacles that determine how easily a firm can enter an industry, are called ______.

entry barriers

In the PESTEL model, political factors are those that relate to ______.

government bodies

Managers have ______ direct influence over external forces in the firm's general environment than those in the firm's task environment.

less

Which of the following tend to result from strong competitive rivalry?

limits to the industry's profit potential

In a period of economic boom, unemployment is ______, and human resources become expensive.

low

Which of the following are factors in a firm's legal environment? (Check all that apply.)

mandates laws regulations

When managers understand the forces in the external environment, they are better able to ______.

mitigate threats and leverage opportunities

The online auction site eBay has more than 100 million active users, so buyers are more likely to find what they are looking for while sellers are more likely to find buyers for the items they are offering. This is an example of __.

network effects

Backward Integration

occurs when a buyer moves upstream in the industry value chain, into the seller's business

In the five forces model, threat of entry refers to the risk that ______.

potential competitors will enter a given industry

Firms are able to create a near monopoly by maximizing ______.

product differentiation

The economic recession that began in 2008 in the United States was the result of unwise investment in ______.

real estate

The intensity with which companies in an industry jockey for market share and profitability is known as ___.

rivalry

If a business considers changing vendors, but doing so would require that business to alter product specifications, retrain employees, and/or modify existing processes, we would say the business faces significant ______.

switching costs

When a firm is able to maximize the gap between ______, it increases its competitive advantage.

the cost of production and the value of what it produces

Price Stability

the lack of change in price levels of goods and services

Political Factors

this results from the processes and actions of governemnt bodies that can influence the decisions and behavior of firms.

The _______ is the idea that products or services available from outside the given industry will come close to meeting the needs of current customers.

threat of substitutes

True or false: High exit barriers lead to intense rivalry.

true

a function of five forces related to competition

value of a firm's product or service

Governments sometimes set up a natural monopoly when a venture ______.

would otherwise not be profitable

Price discounts, frequent new product releases with minor modifications, and intense promotional campaigns are all tactics indicative of an industry with ______ growth.

Slow or negative

The cultures, norms, and values of the society in which a firm competes are considered ______ factors.

Sociocultural

There is a(n) ______ relationship between competitive intensity and the power of the five forces.

Strong

True or false: The relationship between firms and the natural environment must be adversarial (going against

False Reason: Although business has contributed to pollution that has damaged the environment, environmental concerns have also created beneficial opportunities.

True or false: Sociocultural factors tend to be fixed.

False Sociocultural factors tend to be in flux

The weaker the five forces in Porter's model, the _______ the industry's profit potential.

Greater

levels of employment

Growth rates directly affect the level of employment

When buyers can credibly threaten to backwardly integrate into the industry, the power of buyers is ______.

High

When suppliers offer products that are differentiated, the power of suppliers is ______.

High

What impact do strategic commitments have on the airline industry?

- they increase rivalry - they increase the need to sill empty seats

As strategic commitments increase, rivalry within an industry ______.

intensifies

According to Michael Porter, the profit potential of an industry is ______.

a function of five forces related to competition

When a firm in an oligopoly cuts prices, ______.

a price war is likely to result

In a perfectly competitive industry, firms have difficulty ______.

achieving competitive advantage

Redbox offers DVD rentals for $2, which is inexpensive when compared to the price of purchasing a DVD, which may be $10 or more. This is an example of ______.

an attractive price-performance trade off resulting in a high threat of substitution

Global warming would be an example of ___ factor in a firm's external environment.

an ecological

A group of companies that deal with more or less the same set of suppliers and buyers make up ______.

an industry

The most rigorous means of analyzing the profit potential within a specific industry is to conduct ______.

an industry analysis

economies of scale

are cost advantages that accrue to firms with larger output because they can spread fixed costs over more units, employ technology more efficiently, benefit from a more specialized division of labor, and demand better terms from their suppliers .

A rise in economic growth is reflected by ______.

businesses expanding operations to satisfy demand

Which of the following are important factors in determining the intensity of rivalry among existing competitors?

- Exit barriers - Industry growth - Competitive industry structure

According to the five forces model, a firm seeking to compete in an established industry should seek to do which of the following? (Check all that apply.)

- Position itself in a way that relaxes the constraints of strong forces - Position itself in a way that leverages weak forces

What conclusions can be reached about the airline industry using the five forces framework?

- The mega-airlines must constantly struggle to achieve consistent profitability. - The supporting players, such as airports and aircraft suppliers, are quite profitable.

Which of the following are ways that powerful suppliers are a threat to firms? (Check all that apply.)

- They can force the cost of production to increase. - They can reduce the industry's profit potential. - They can capture part of the economic value created by firms.

In an oligopoly, which of the following conditions exist? (Check the three that apply.)

- a few large firms - high barriers to entry - differentiated products

Which of the following are ways in which the power of buyers affects producers? (Check all that apply.)

- by requesting more service - by demanding higher quality - by obtaining price discounts

Which of the following are likely outcomes of a competitive rivalry based entirely on price cutting? (Check all that apply.)

- investments from firms drop off - most or all value is transferred to customers - firms struggle to make profits

Which of the following are employed as nonmarket strategies to influence government bodies? (Check all that apply.)

- lobbying - public relations - litigation

Advantages independent of size

Incumbent firms often possess cost and quality advantages that are independent of size. -brand loyalty -proprietary technology -preferential access to raw materials and distribution channels -favorable geographic locations -cumulative learning and experience effects

Which of the following are examples of commonly encountered capital requirements? (Check all that apply.)

- managing a production process - paying for start-up losses - setting up production facilities

What might potential substitutes do to make themselves more attractive to customers?

- offer a lower price - offer a higher value proposition

Which of the following are advantages, independent of size, that incumbent firms possess? (Check all that apply.)

- proprietary technology - brand loyalty - preferential access to distribution channels - cumulative experience effects

The pressure of rivalry increases when which of the following forces increase in intensity? (Check all that apply.)

- the power of buyers and suppliers - the threat of substitutes - the threat of entry

In the early 2000s, easy credit made real estate the investment of choice in the United States. By the end of the decade, however, a recession had set in, impacting almost all businesses in the country. This example shows that _____.

economic boom periods can overheat and lead to speculative bubbles

monopolistically competitive

has many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers

Exit barriers, strategic commitments, and competitive industry structure are important factors in determining the _____________.

intensity of rivalry

Industry

is a group of incumbent (currently existing) firms facing more or less the same set of suppliers and buyers.

Currency Exchange Rate

Determines how many dollars one must pay for a unit of foreign currency. depreciate (goes down) appreciates (value goes up)

True or false: Airlines that are strategically committed to the hub-and-spoke model face high fixed costs to maintain their network of routes that affords global coverage. Such strategic commitment leads to high fixed costs and therefore decreased rivalry.

False Reason: Such strategic commitment leads to high fixed costs and therefore increased rivalry.

Many firms of all sizes actively compete in the computer hardware industry, and there are no firms with a large market share. Product offerings tend to be similar but are differentiated in ways that enable some firms to raise or impact pricing. The computer hardware industry is an example of ______.

Monopolistic Competition

What is the result of low barriers to entry in the airline industry?

New airlines join the market from time to time.

PESTEL Model

Politcal Economic sociocultural technological ecological legal

credible threat of retaliation

Potential new entrants must also anticipate how incumbent firms will react. A credible threat of retaliation (revenge) firms often deters entry

strategic positioning

its ability to create value (V) for customers while containing the cost (C) to do so.

Oligopoly/Oligopolistic

is an industry that is consolidated with a few large firms. differentiated products, high barriers of entry, and some degree of pricing power.

Perfectly competitive industry

is fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices + perfect competition is rare : natural gas, copper, and iron tend to approach this structure

Exit Barriers

it is the obstacle that determines how easily a firm can leave that industry. (comprises both economic and socio factors)

What is the PESTEL model?

it provides a relatively straightforward way to scan, monitor, and evaluate the important external factors and trends that might impinge upon a firm. These factors create opportunities and threats.

Profit Potential

the stronger the five forces, the lower the industry's profit potential (making the industry less attractive for competitors) The weaker the five forces, the greater the industry's profit potential (making industry more attractive)