chap 16
One of the benefits of a company producing at multiple stages in a production chain rather than specializing in just one stage is:
NOT increased market power of the supplier
Which of the following is a supply-side strategy that a company owner could use to maintain its dominance as a seller in its product market?
NOT the company could differentiate its product
What is price competition?
Sellers try to win customers through charging as low a price as possible.
The basis of product differentiation is to convince your customers that your product _____ so that customers will _____ for your firm's product.
will more completely satisfy their wants; pay a higher price
Marcella is a tomato farmer. Under which of the following conditions would she face the most intense competition?
Marcella is one of 1,200 tomato farmers who sell in the same tomato market.
Potential substitutes for a given product:
NOT are always similar to the given product
Lena owns a cookie bakery in a small city. There are six other bakeries that offer cookies in the city. Which of the following is NOT an example of the threat of entry that Lena faces in her local baked goods market?
One of the six bakeries that offer cookies in the city may decide to cease cookie production in order to focus on cakes.
Which of the following strategies would NOT reduce the threat posed by substitutes?
Raise price to show that product demand is strong
When there is only one buyer in a product market, a seller in the market:
may be pressured to sell at a lower price than if there were many buyers.
Amal invests in equipment that allows him to win a contract to supply inputs to an interior designer. When the contract is up for renewal, the interior designer insists on no increases in the price she pays. This disappoints Amal, who wanted a price increase because some of his costs have risen, but he needs the sales to keep up with payments for the equipment. Amal is experiencing:
a hold-up problem
Making relationship-specific investments can _____ bargaining power because they can _____.
weaken; worsen the company's next-best alternative.
Med-Ready Supplies produces and sells thermometers that are basically identical to those sold by other companies in the market. However, Med-Ready thermometers sell for twice the price of the other thermometers. Why can Med-Ready charge higher prices than other sellers yet still maintain customers?
In the minds of customers, Med-Ready must have successfully differentiated its thermometers from the others.
Which of the following statements about product differentiation is FALSE?
It is charing a lower price than other sellers. (meaning, things about prod different that are true are it can be achieved even when the product is identical to that for sale by other firms, it is a key way for a seller to maintain long-term profits, and it can be achieve through customer service.)
Dinesh owns a restaurant. He is able to negotiate lower prices than other restaurants pay with his supplier because he buys in volume and threatens to buy from another supplier. Dinesh is:
exercising bargaining power.
When a market is perfectly competitive, advertising typically is done _____ because _____.
for the entire industry; it affects market demand more effectively than some individual company demands
Positioning your product closer to those produced by rivals will increase your company's _____, but positioning it further from those produced by rivals will increase its _____.
quantity sold; profit margin
When your company's advertising is effective, the demand curve for your company's product will shift to the _____ and rotate to a _____ slope.
right; steeper
A company can reduce the chance that new sellers will enter the market with different versions of the market's product by:
selling a wide variety of versions of the product
Which of the following can reduce the incentive of business partners to hold up a company when the company has made relationship-specific investments?
A long-term relationship based on trust exists between the partners and the company.
Price competition with a product that is identical across sellers leads to an outcome of:
zero economic profits for the sellers.
_____ the long-term profitability of a company.
Market structure determines
In which of the following situations would the level of competition be most intense?
More firm are in the market
The threat of entry includes the:
NOT addition of new distribution channels by existing businesses, the expansion of existing businesses into the market, and the creation of a new product market. (longest one)
Avoiding the possibility of hold-up problems can lead to the problem of:
NOT relationship-specific contracts
In which of the following cases would a company's profits be threatened?
One of its key input providers gains market power in the input market.
In which of the following situations would the supplier have the greatest power to hurt a business that is its customer?
The supplier rents building space to a bakery in a real estate market with a vacancy rate of less than .5%.
Which of the following sellers faces the least competitive pressure?
a monopolist with no direct rivals
The five forces that determine the long-term profitability of a company in a market include the:
bargaining power of suppliers
What protects a business from the threat of entry by potential competitors?
barriers to entry
In differentiating a product, the demand-side consideration is to _____ as possible.
be as attractive to buyers
How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the:
business may lose customers to the substitute good's market unless it lowers price.
A business owner spends on advertising with the intent that it will affect the demand for the company's product in what two ways?
by increasing the company's demand and making its demand more inelastic
Advertising has goals of affecting demand for a company's product in what two ways?
by shifting the company's demand curve to the right and making the curve's slope steeper
According to the Five Forces framework, the greater the _____ in an industry, the lower the _____ in the industry will be.
degree of rivalry; average profits
As a basic rule of thumb, when price competition is intense, business owners should try to:
differentiate their products as much as possible.
A company's decision regarding the degree to which it should vertically integrate or be more specialized is basically a trade-off between _____ and _____.
eliminating the bargaining power of customers and suppliers; providing incentives for efficiency and profit
Which of the following is NOT an example of a relationship-specific investment that could result in a hold- up problem?
organizing the layout of a factory for the most efficient flow of the production line.
Which of the following is one of the five forces that determine the long-term profitability of a company in a market?
potential competitors
In the absence of product differentiation, _____ to prevail, leading to _____ profits.
price competition tends; low
As a general rule, the more similar a firm's product is to those of its rivals, the more intense _____ will be, and the _____ likely customers will be to switch between sellers.
price competition; more
The two dimensions of the rivalry between current competitors in a product market are _____ and _____.
price competition; non-price competition
When price competition occurs:
price is pushed down, reducing profits
Google Chrome, Microsoft Edge, Firefox, and Opera are examples of:
product differentiation
Product differentiation can be achieved through all of the following EXCEPT differences in:
product price
Jorge is considering what to give his wife for their wedding anniversary. He is choosing between flowers, dinner at a restaurant, a weekend at a resort hotel, skydiving together, or a visit to her favorite museum. Based on Jorge's consideration of these options for a gift, Jorge considers them to be:
substitute products
A company is able to maintain dominance in a product market by:
successfully differentiating its product.
Marta wants to open a shop specializing in gourmet candies and is having a difficult time finding space to rent in a location where many potential customers will pass by each day. There are only two possible locations that meet Marta's criteria, and several other types of businesses are vying to rent each location. This leads to high rents. What challenge to profitability is Marta facing as she starts her business?
suppliers with bargaining power
When a product is NOT differentiated and price competition prevails, then:
the sellers are not likely to earn economic profits.
Chantelle is a monopolist with a patent on her product. There is no close substitute. What would be her goal in advertising?
to increase demand in her market.
Which of the following mergers between two companies would be considered to be a vertical merger?
A fabric mill merges with a pants factory.
A key thing for managers to remember regarding product differentiation is that:
NOT difference across the products of different companies are innate to the products
Price competition with identical products across producers leads to _____ because _____.
a low price; consumers choose a seller based on price
The sources of product differentiation do NOT include:
consumers' dislike of having options
A company will be subject to price competition if:
customers view its product as the same as or very similar to the products of rival companies.
Vertical integration occurs in a merger when the companies that merge:
had a buyer-seller relationship prior to the merger, with each covering a different stage in a production chain.
Long-term contracts can overcome the _____ that sometimes stems from relationship-specific investments, but only if _____.
hold-up problem; the contract terms are complete
In which of the following types of market structure is advertising used more intensively to increase demand for a company's product rather than market demand?
imperfect competition
Which of the following statements regarding advertising is correct? Advertising by a _____ seller affects primarily _____.
imperfectly competitive; demand for the seller's product more than market demand
A company's owner can improve its bargaining power by _____ and _____.
improving its next best alternative; making the other party aware of it.
Another name for product differentiation is:
non-price competition
In the long run, the strength of the barriers to entry in a market have an impact on the _____ and the _____ in the market.
number of sellers; profit level
The threat of potential substitutes is high when the substitutes:
offer greater value for their price than the original product.
Many customers will walk right past a local neighborhood restaurant that serves coffee with breakfast and go directly to Dunkin' Doughnuts (because America runs on Dunkin'), where they traditionally pay more for a cup of coffee. For these customers, coffee is differentiated by:
quality
A new vendor wants to position his cart on a beach where another seller is already selling from a cart. To attract as many customers are possible, the new vendor should choose:
the side of the beach with the most customers and as close to the current seller as possible.
Heri owns one of three shoe repair shops in his city. Then he loses some of his customers when a luggage repair shop expands its services to include shoe repair as well as luggage repair. Which of the five forces in the Five Force framework is Heri facing when the luggage shop expands its services?
threat of entry
According to the Five Forces framework, a seller's existing competitors determine the _____ and _____ of existing competition.
type; intensity
(Figure: Demand After Advertising) Which of the following diagrams shows what would happen to a company's demand curve after an effective advertising campaign? Old demand is demand before advertising, and New demand is demand after advertising.
C (new demand is y=-x, old demand is below and forms acute angle the further along x-axis you travel)
Which of the following is NOT one of the benefits that result when a company produces at several stages in a production chain rather than specializing in just one stage?
It increases within-brand competition.
According to the Five Forces framework, how do suppliers with market power impact a company's profitability?
Suppliers with market power can charge higher prices on inputs the company needs to purchase, reducing the company's profits.
The characteristics of search goods make _____ advertising particularly effective.
informative
Clarice's factory has invested in expensive equipment to produce a specialized weapon for her government's military. There are no other buyers of this type of weapon, and the equipment is not useful for the production of other goods. Which of the following statements describes Clarice's vulnerability based on the Five Forces framework?
Clarice is vulnerable because her customer has market power.
According to the Five Forces framework, how can producers of potential substitute goods impact a company's profits?
The producers of potential substitute goods may become actual competitors, causing the market demand to be spread across a larger number of companies and thereby reducing the profits of the original companies.
In which of the following situations would a company have a lower chance of losing customers when it raises the price of its product?
The product is differentiated across companies.
In which of the following situations would the supplier of an input to Andrea's Herbal Supplement Products have the greatest market power to hurt Andrea's Herbal Supplement Products?
The supplier is the only available provider of a critical input.
Your company should position its product _____ its rival to attract as many customers as possible and _____ its rivals to reduce price competition.
close to; far from