Chapter 3: External Analysis: Industry Structure, Competitive Forces, and Strategic Groups

_____ are best described as industry-specific factors that separate one strategic group from another. A. Mobility barriers B. Excise duties C. Embargoes D. Learning effects

A. Mobility barriers Mobility barriers restrict movement between strategic groups. These are industry-specific factors that separate one strategic group from another.

Which of the following external forces is a part of a firm's task environment? A. the composition of the strategic group to which the firm belongs B. the interest rates prevalent in the economy in which the firm operates C. the inflation level in the economy in which the firm operates D. the recent innovations in process technology, including lean manufacturing

A. the composition of the strategic group to which the firm belongs External factors in a firm's task environment are ones that managers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry.

How do low interest rates affect a business? A. Firms tend to defer investments. B. Firms can easily borrow money to finance future growth. C. Consumer demand slows down. D. Business credit is harder to obtain.

B. Firms can easily borrow money to finance future growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates reduces the cost of capital and enhances a firm's competitiveness

The primary objective of Porter's five forces model is to A. replace a firm's competitive advantage with competitive parity. B. understand the profit potential of different industries. C. reduce the gap between the value of a firm's product and its cost of production. D. break down a firm's value chain activities into primary and support.

B. understand the profit potential of different industries. Michael Porter developed the highly influential five forces model to help managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage.

Which of the following forces was not originally a part of Michael Porter's fives forces model? A. threat of substitute products or services B. bargaining power of buyers C. rivalry among existing competitors D. strategic role of complements

D. strategic role of complements As valuable as the five forces model is for explaining the profitability and attractiveness of industries, some strategy scholars have suggested that the value of Porter's five forces model can be further enhanced if one also considers the availability of complements.

_____ is best described as cooperation by competitors to achieve a strategic objective. A. Co-opetition B. Conglomeration C. Amalgamation D. Liquidation

A. Co-opetition Co-opetition is cooperation by competitors to achieve a strategic objective.

While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-and-spoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups? A. Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. B. American, United, and Delta Airlines will be affected differently by Porter's five competitive forces. C. Alaska Airlines and Delta Airlines will be affected by the external environment in very similar ways. D. Competitive rivalry between Virgin Atlantic and Delta Airlines is likely to be higher than that between American, Delta, and United.

A. Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. Competitive rivalry is strongest between firms that are within the same strategic group. The closer firms are on the strategic-group map, the more directly and intensely they are in competition with one another.

In the luxury cruise industry, the small cruise lines Tropics Inc. and Sunset Inc. merged to form TropicalSunset Inc. After the merge, the competition between TropicalSunset Inc. and the two mega cruise lines, Pacifico and West Winds, has increased significantly. Which of the following statements best explains why this happened? A. Competitive rivalry is strongest between firms that are within the same strategic group. B. Competition always increases when two small firms merge into a mega firm. C. Competition always increases if there are only two or three mega firms competing. D. Competitive rivalry is strongest between firms that service the same region.

A. Competitive rivalry is strongest between firms that are within the same strategic group. Competitive rivalry is strongest between firms that are within the same strategic group.

How is a firm's task environment different from its general environment? A. Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment. B. Managers have no direct effect over external factors in the task environment; they have some influence over external forces in the general environment. C. Managers have no direct effect over external factors in the task environment; they have influence over all external forces in the general environment. D. Managers have influence over all external factors in the task environment; they have no direct effect over external forces in the general environment.

A. Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment. Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment.

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 A. co-opetition. B. perfect competition. C. monopolization. D. conglomeration.

A. co-opetition. This scenario best illustrates the process of co-opetition. Co-opetition is cooperation by competitors to achieve a strategic objective.

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? A. Since suppliers of its key sources are few, the bargaining power of suppliers is high. B. Since individual buyers do not have many choices, their bargaining power is low. C. There is a lack of balance in demand and supply, demand far exceeds capacity within the industry. D. There is a noticeable absence of complementary products and services for the industry.

A. Since suppliers of its key sources are few, the bargaining power of suppliers is high. As mentioned in Chapter Case 3, an external industry force that Tesla Motors must address is the bargaining power of suppliers. Lithium-ion battery packs are key components for Tesla's electric engines. They are supplied by only a few technology firms such as Panasonic in Japan. Given that these sources are few, the bargaining power of suppliers in the electric car segment is quite high, further limiting the industry's profit potential.

Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry? A. Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. B. Suppliers have weak bargaining power because they offer products that are not differentiated. C. Entry barriers in the industry are high resulting in hardly any new airlines popping up. D. Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.

A. Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. According to Strategy Highlight 3.2, the competitive forces are quite unfavorable for generating a profit potential in the airline industry. Substitutes are readily available: If prices are seen as too high, customers can drive their cars or use the train or bus.

Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines? A. The overall industry profitability will increase. B. The threat of strong competitive forces such as supplier power will increase. C. The industry will face excess capacity in the future. D. The structure of the industry will change from consolidated to one that is fragmented.

A. The overall industry profitability will increase. Having fewer competitors generally equates to higher industry profitability. According to Strategy Highlight 3.2, the U.S. domestic airline industry has witnessed several large, horizontal mergers between competitors, including Delta and Northwest, United and Continental, Southwest and AirTran, as well as American and U.S. Airways. These moves in turn allow the remaining carriers to enjoy a more benign industry structure.

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? A. The threat of new entrants will be higher for Burger Cult Inc. than Citizen Telecom Inc. B. Burger Cult Inc. will have more pricing power than Citizen Telecom Inc. C. Burger Cult Inc. will have more profit potential than Citizen Telecom Inc. D. The number of buyers will be limited for both Burger Cult Inc. and Citizen Telecom Inc.

A. The threat of new entrants will be higher for Burger Cult Inc. than Citizen Telecom Inc. The threat of new entrants is higher for Burger Cult Inc. than Citizen Telecom Inc. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers. An industry is a monopoly when there is only one (large) firm supplying the market.

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? A. The travel industry changed from a consolidated structure to a fragmented one. B. The pricing power of the incumbent firms in the travel industry has increased. C. The bargaining power of buyers in the travel industry has decreased. D. The structure of the travel industry changed from monopolistic competition to an oligopolistic one.

A. The travel industry changed from a consolidated structure to a fragmented one. A consolidated industry structures may break up and become more fragmented. This generally happens when there are external shocks to an industry such as deregulation, new legislation, technological innovation, or globalization.

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces? A. Threat of new entrants will be low. B. Bargaining power of suppliers will be high. C. Availability of complements will be low. D. Threat of substitute products and services will be high.

A. Threat of new entrants will be low. The threat of entry is low when incumbents possess cumulative learning and experience effects.

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. a premium car manufactured and sold by Mova Autos Inc., a rival company B. a bank that insures cars against theft and accidents C. a car service station managed and run by Shield Autos Inc. D. a stereo system that can be used as a GPS system in cars

A. a premium car manufactured and sold by Mova Autos Inc., a rival company A premium car manufactured and sold by Mova Autos Inc. will be a substitute, not a complement. A complement is a product, service, or competency that adds value to the original product offering when the two are used in tandem.

Competitive industry structure refers to elements and features common to A. all industries. B. successful industries. C. new industries. D. incumbent industries.

A. all industries. Competitive industry structure refers to elements and features common to all industries

In an industry, the threat of entry is high when A. capital requirements are low. B. expected returns are high. C. technological know-how is industry specific. D. switching costs are high.

A. capital requirements are low. The threat of entry is high when capital requirements are low in comparison to the expected returns. If an industry is attractive enough, efficient capital markets are likely to provide the necessary funding to enter an industry. Capital, unlike proprietary technology and industry-specific know-how, is a resource that can be relatively easily acquired in the face of attractive returns.

Which of the following is a feature of a monopolistically competitive industry? A. differentiated products B. high entry barriers C. no pricing power D. a single firm

A. differentiated products A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

The final step in industry analysis is to A. draw a strategic-group map. B. identify the underlying drivers of the five forces. C. identify the key players in each of the five forces. D. define the relevant industry.

A. draw a strategic-group map. The final step in industry analysis is to draw a strategic-group map. This exercise allows managers to unearth and explain performance differences within the same industry.

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because A. entering the aircraft manufacturing industry requires huge capital investments. B. there is expected to be a huge return on investment within this industry. C. there is no credible threat of retaliation from the incumbents. D. entering the aircraft manufacturing industry means violating government policies.

A. entering the aircraft manufacturing industry requires huge capital investments. There is not a significant threat of entry because entering the aircraft manufacturing industry requires huge capital investments.

A strategic group will typically include A. firms within the same industry. B. customers belonging to a particular socioeconomic class. C. firms employing similar number of employees, irrespective of their industries. D. employees within a firm earning the same amount of salaries.

A. firms within the same industry. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage.

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? A. industry convergence B. backward integration C. product differentiation D. customer myopia

A. industry convergence This phenomenon is best known as industry convergence. Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.

Five years ago, Palomino Airline was able to get a strong foothold in the airline industry by hiring a few pilots and crew and renting two airplanes, which flew routes between Denver, Omaha, Pierre, Cheyenne, and Helena. Which of the following summarizes the above factors that enabled Palomino to get started? A. low entry barriers B. low competition C. low fares D. low flight cancellations

A. low entry barriers Palomino was able to get started in the airline industry because of low entry barriers, including hiring a few pilots and crew and renting two airplanes.

Which type of industry structure is often analyzed using game theory? A. oligopolistic B. monopolistic C. perfectly competitive D. monopolistically competitive

A. oligopolistic An oligopolistic industry structure is often analyzed using game theory, which attempts to predict strategic behaviors by assuming that the moves and reactions of competitors can be anticipated.

Rhino Pictures Inc. is a large production company that controls a major portion of the movie industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Rhino Pictures Inc. is most likely functioning in a(n) _____ industry. A. oligopolistic B. monopolistic C. perfectly competitive D. monopolistically competitive

A. oligopolistic In this scenario, Rhino Pictures Inc. is most likely functioning in an oligopolistic industry. An oligopolistic industry is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power.

During periods of high industry growth A. price competition among firms frequently decreases. B. rivals are focused on taking market share away from one another. C. firms indulge in intense promotional campaigns. D. new product releases with minor modifications become common.

A. price competition among firms frequently decreases. In periods of high growth, consumer demand is rising, and price competition among firms frequently decreases. Because the pie is expanding, rivals are focused on capturing part of that larger pie rather than taking market share and profitability away from one another.

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers. A. price-cutting B. new product releases C. promotional campaigns D. product differentiation

A. price-cutting Competitive rivalry based solely on cutting prices is especially destructive to profitability because it transfers most, if not all, of the value created in the industry to the customers—leaving little, if anything, for the firms in the industry

A firm's _____ relates to its ability to create value for customers (V) while containing the cost to do so (C). A. strategic position B. incumbency C. threat of entry D. attrition rate

A. strategic position A firm's strategic position relates to its ability to create value for customers (V) while containing the cost to do so (C). Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it (V C).

The relative bargaining power of suppliers is high when A. suppliers provide products that are differentiated. B. incumbent firms face low supplier switching costs. C. incumbent firms can credibly threaten to backward integrate into the industry. D. suppliers depend heavily on the industry for a large portion of their revenues.

A. suppliers provide products that are differentiated. The relative bargaining power of suppliers is high when suppliers offer products that are differentiated and when suppliers do not depend heavily on the industry for a large portion of their revenues.

Which of the following would most likely not indicate that sellers are a strong competitive force in an industry? A. when the buyers' cost of switching to substitutes is low B. when the products and services they provide can be differentiated C. when the buyers of their products are customers who buy in small quantities D. when the components they supply affect buyers' product quality

A. when the buyers' cost of switching to substitutes is low The threat of substitutes is high when the substitute offers an attractive price-performance trade-off or when the buyer's cost of switching to the substitute is low.

A key feature of an oligopoly is that the competing firms A. are independent. B. have no pricing power. C. are interdependent. D. have no barriers to entry.

C. are interdependent. A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others

In 2008, BlackBerry's market cap peaked at $75 billion. By 2015 this valuation had fallen more than 90 percent, to less than $7 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline? A. BlackBerry failed to offer strong security features for its device. B. BlackBerry failed to change its device into one that could perform multiple tasks effectively. C. BlackBerry failed to adapt to a groundswell that involved workers bringing mobile devices to work. D. BlackBerry failed to produce an efficient emailing system using a keyboard.

B. BlackBerry failed to change its device into one that could perform multiple tasks effectively. Although BlackBerry devices were great in productivity applications, such as receiving and responding to email via typing on its iconic physical keyboard, they did not provide effective access to texting, surfing the web, taking pictures, or playing games. Because of this, BlackBerry declined because it could not compete with iPhone, which performed multiple tasks effectively.

Which of the following is a drawback of Porter's five forces model? A. The model describes competition narrowly as a firm's closest competitors. B. Managers cannot determine the changing speed of an industry or the rate of innovation. C. It fails to provide a basis for deriving implications for a firm's strategic position within an industry. D. The model fails to consider that threat of substitutes can come from outside a given industry.

B. Managers cannot determine the changing speed of an industry or the rate of innovation. With the five-forces-plus-complements model, one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that managers must repeat their analysis over time in order to create a more accurate picture of their industry.

Companies in the same strategic group are _____ to each other. A. complementors B. direct competitors C. strategic partners D. shareholders

B. direct competitors Companies in the same strategic group are direct competitors. The rivalry among firms of the same strategic group is generally more intense than the rivalry between strategic groups: intra-group rivalry exceeds inter-group rivalry.

Which of the following is an implication of high exit barriers in an industry? A. The number of underperforming firms in the industry will be low. B. The industry will face excess capacity. C. The competitive pressure among existing firms will be low. D. The industry will be more attractive for new entrants.

B. The industry will face excess capacity. An industry with low exit barriers is attractive because it allows underperforming firms to exit more easily. This in turn reduces competitive pressure on the remaining firms because excess capacity is removed. In contrast, an industry with high exit barriers reduces its profit potential because excess capacity still remains.

Which of the following statements is not true about the five forces in Porter's competitive analysis model? A. The relative strengths of the five forces that shape competition are context-dependent. B. The stronger the five forces in an industry, the greater the industry's profit potential. C. Competition in the model is described as the tug-of-war between the five forces to capture as much as possible of the economic value created in an industry. D. An analysis of the five forces provides the basis for how a firm should position itself to gain and sustain a competitive advantage.

B. The stronger the five forces in an industry, the greater the industry's profit potential. As a rule of thumb, the stronger the five forces in an industry, the lower the industry's profit potential—making the industry less attractive for competitors. The reverse is also true: the weaker the five forces, the greater the industry's profit potential—making the industry more attractive.

Which of the following is a characteristic of a fragmented industry? A. The entry barriers are high. B. There are many small firms. C. Firms tend to have high profitability. D. Firms have substantial pricing power.

B. There are many small firms. A fragmented industry consists of many small firms and tends to generate low profitability

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? A. Beans Inc. will face competition from many sellers, whereas Classica Apparel Inc. will be the only seller in the market. B. 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. C. Beans Inc. will have many buyers for its products, whereas Classica Apparel Inc. will have very few buyers for its products. D. While Beans Inc. will communicate the degree of product differentiation through advertising, Classica Apparel Inc. will need no advertising.

B. 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. 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 firm competing in a perfectly competitive industry has little or no ability to raise its prices. This is because the commodity product offerings are more or less identical.

Which of the following is the best characterization of sociocultural forces? A. a firm's culture, norms, and values B. a society's culture, norms, and values C. a competitor's culture, norms, and values D. a focus group's culture, norms, and values

B. a society's culture, norms, and values Sociocultural factors capture a society's cultures, norms, and values. Because sociocultural forces are not only constantly in flux but also differ across groups, managers need to closely monitor such trends and consider the implications for firm strategy.

In the step-by-step process of industry analysis, identifying the underlying drivers of each force is followed by A. drawing a strategicgroup map. B. assessing the overall industry structure. C. identifying key players in each of the five forces. D. defining the relevant industry.

B. assessing the overall industry structure. Industry analysis involves: (1) defining the relevant industry, (2) identifying key players in each of the five forces, (3) identifying the underlying drivers of each force, (4) assessing the overall industry structure, and (5) drawing a strategic group map.

How can a firm change its industry structure from monopolistically competitive or oligopolistic to a near monopoly? A. by reducing the entry barriers in its industry B. by developing proprietary technology C. by implementing frequent price-cuts D. by decreasing its pricing power

B. by developing proprietary technology Near monopolies are firms that have accrued significant market power, for example, by owning valuable patents or proprietary technology. In the process, they are changing the industry structure in their favor, generally from monopolistic competition or oligopolies to near monopolies.

Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure? A. competing against each other through product differentiation B. competing against each other through price-cutting C. competing against each other through new-product introductions D. competing against each other through lifestyle advertisements

B. competing against each other through price-cutting When one firm in an oligopoly cuts prices to gain market share from its competitor, the competitor typically will respond in kind and also cut prices. This process initiates a price war, which can be especially detrimental to firm performance if the products are close rivals. Therefore, non-price competition is the preferred mode of competition.

SooGood Inc. produces a dip that goes extremely well with Crunchy Potato Chips Inc. SooGood Inc., therefore, is a _____ of Crunchy. A. direct competitor B. complementor C. indirect competitor D. shareholder

B. complementor SooGood Inc. is a complementor of Crunchy because customers value SooGood's product more when they are able to combine it with Crunchy's product.

Which of the following is an example of monopolistic competition? A. iron ore industry B. computer hardware industry C. express delivery industry D. beverages industry

B. computer hardware industry The computer hardware industry provides one example of monopolistic competition. Many firms compete in this industry, and even the largest of them (like Acer, Apple, Dell, HP, or Lenovo) have less than 20 percent market share

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class. A. political trends B. demographic trends C. ecological trends D. economic trends

B. demographic trends Demographic trends are important sociocultural forces. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

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? A. network effects B. economies of scale C. customer switching costs D. capital requirements

B. economies of scale Tesla is hoping to benefit from economies of scale in this market niche. Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Industry convergence is a process whereby A. firms within the same industry start to satisfy different customer needs. B. formerly unrelated industries begin to satisfy the same customer need. C. excess capacity within an industry is reduced through horizontal mergers. D. firms within an industry start to target a narrow market segment.

B. formerly unrelated industries begin to satisfy the same customer need. Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using _______ to influence the political process. A. ecological factors B. lobbying forces C. interest rates D. demographic research

B. lobbying forces Many large companies use powerful lobbying forces to influence the political process.

Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate? A. perfect competition B. monopolistic competition C. monopoly D. oligopoly

B. monopolistic competition This scenario best illustrates a monopolistically competitive structure. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate? A. monopolistic competition B. monopoly C. oligopoly D. perfect competition

B. monopoly This best illustrates a monopoly. An industry is a monopoly when there is only one (large) firm supplying the market.

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? A. monopolistic competition B. oligopoly C. monopoly D. perfect competition

B. oligopoly This scenario best illustrates an oligopoly. The term oligopoly comes from the Greeks and means "few sellers." An oligopolistic industry is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others.

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 A. opportunity cost. B. switching cost. C. octroi charge. D. excise duty.

B. switching cost. In this scenario, $10,000 represents First Ledger Inc.'s switching cost. Switching costs are incurred by moving from one supplier to another. Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes.

What are network effects? A. the positive cost effects that accrue for firms with larger output because they can spread fixed costs over more units B. the positive effect that one user of a product or service has on the value of that product or service for other users C. the positive effect that the high price of the entry ticket has on incumbent industries D. the positive cost effects that standardized commodities have on incumbent industries

B. the positive effect that one user of a product or service has on the value of that product or service for other users Network effects are the positive effect that one user of a product or service has on the value of that product or service for other users.

Which of the following represents an economic factor in a firm's external general environment? A. the government regulations and laws in the country in which the firm exists B. the stage of the business cycle that the country is in C. the values and norms prevalent in the society in which the firm operates D. the bargaining power of the firm's suppliers and buyers

B. the stage of the business cycle that the country is in The overall economic growth rate is a measure of the change in the amount of goods and services produced by a nation's economy. It indicates what stage of the business cycle the economy is in—that is, whether business activity is expanding (boom) or contracting (recession).

Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit? A. the management consultancy industry in which the company's fixed costs are low B. the steel industry in which the company has obligations like severance pay toward employees C. the corporate training industry in which the company's commitments are mostly short-term D. the e-commerce industry where the company has no long-term contractual agreements with suppliers

B. the steel industry in which the company has obligations like severance pay toward employees Peerless Inc. would find it most difficult to exit the steel industry in which the company has obligations like severance pay toward employees. Exit barriers are comprised of both economic and social factors. A company exiting an industry may still have contractual obligations to suppliers, such as employee health care and retirement benefits, as well as severance pay.

Buyers are highly price sensitive when A. their purchase represents a small fraction of their procurement budget. B. they earn low profits or are strapped for cash. C. the quality of their products and services are highly affected by the quality of the inputs. D. the industry's products are highly characterized with non-price competition.

B. they earn low profits or are strapped for cash. Companies need to be aware of situations when buyers are especially price sensitive. This is the case when buyers earn low profits or are strapped for cash.

The telecom industry in the country of New Taria 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 A. threat of substitutes is most likely high. B. threat of new entrants is most likely low. C. bargaining power of buyers is most likely low. D. entry barriers are most likely nonexistent.

B. threat of new entrants is most likely low. In this scenario, the threat of new entrants is most likely low. The threat of potential entry is reduced when network effects are present. The threat of entry describes the risk that potential competitors will enter the industry. Entry barriers, which are advantageous for incumbent firms, are obstacles that determine how easily a firm can enter an industry.

When is the rivalry among existing competitors in an industry likely to be more intense? A. when the industry growth rate is high B. when firms make strategic commitments to compete in an industry C. when firms engage in non-price competition as opposed to price-cutting D. when the industry has low exit barriers

B. when firms make strategic commitments to compete in an industry If firms make strategic commitments to compete in an industry, rivalry among competitors is likely to be more intense.

Which of the following statements with regard to industry structures is true? A. They are stable over time, not dynamic. B. Having a large number of competitors generally equates to higher industry profitability. C. A consolidated industry tends to be more profitable than a fragmented one. D. Having few but large competitors increases the threat of strong competitive forces such as supplier or buyer power.

C. A consolidated industry tends to be more profitable than a fragmented one. Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through (horizontal) mergers and acquisitions.

Which of the following best illustrates a firm operating in a monopolistically competitive industry? A. A foreign exchange company sells currencies of different countries at market prices as it cannot differentiate its products from its competitors. B. A chain of multiplex theaters, along with its competitor, owns 80 percent of the multiplex market share. C. An automobile manufacturer uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers. D. A railway company owned by the government of New Darvland owns 100 percent of the railway transport in the country.

C. An automobile manufacturer uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers. A monopolistically competitive industry is best illustrated by an automobile manufacturer that uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE) in 2008? A. A strong threat of substitutes decreases the rivalry among existing competitors. B. All the five forces must work together to have a meaningful impact. C. Any of the five forces on its own, if sufficiently strong, can extract industry profitability. D. Competition must be defined more narrowly to remain confined to the industry's closest competitors.

C. Any of the five forces on its own, if sufficiently strong, can extract industry profitability. The AVE example highlights the two fundamental insights provided by Porter's five forces framework. First, competition must be defined more broadly to go beyond direct industry competitors. Second, any of the five forces on its own, if sufficiently strong, can extract industry profitability.

Go West Airlines Inc. follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor? A. Deerpath Airlines Inc., which follows a cost-increase strategy B. John Henry Railways, which follows a differentiation strategy C. Blue Skies Airlines Inc., which follows a low-cost strategy D. Blue Cabs Inc., which follows a cost-leadership strategy

C. Blue Skies Airlines Inc., which follows a low-cost strategy Blue Skies Airlines Inc., which follows a low-cost strategy, will be Go West Airlines Inc.'s direct competitor. Companies in the same strategic group are direct competitors.

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. A. competitor B. shareholder C. complementor D. strategic equivalent

C. complementor A company is a complementor 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.

Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers? A. New auto companies create electric cars powered by simpler motors and gearboxes. B. New entrants in the automotive industry expect that incumbents will not or cannot retaliate. C. Car manufacturers require large-scale production in order to be cost-competitive. D. Few industrial products are as easy to build as cars powered by internal combustion engines.

C. Car manufacturers require large-scale production in order to be cost-competitive. The U.S. automotive industry is characterized by high entry barriers. Car manufacturers require large-scale production in order to be cost-competitive.

Which of the following statements about Porter's five forces model is accurate? A. The potential profit of a company is caused mostly by random factors instead of by industry-specific factors. B. Competition must be defined narrowly to focus on the closest competitors and plan ways increase profit potential. C. Competition must be defined in a broad way to incorporate all of the key factors that influence profit potential. D. The potential profit of a company is caused by two forces: threat of substitutes and rivalry among existing firms.

C. Competition must be defined in a broad way to incorporate all of the key factors that influence profit potential. Rather than defining competition narrowly as the firm's closest competitors to explain and predict a firm's performance, competition must be viewed more broadly to encompass not only direct rivals but also a set of other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

Which of the following is an accurate statement about near monopolies? A. Near monopolies are medium-sized firms that have some market power and thereby can influence the industry structure to a certain extent. B. Near monopolies are small firms in an industry that have differentiated products but little or no ability to raise their prices. C. Near monopolies are firms that have accrued significant market power and thereby are changing the industry structure in their favor. D. Near monopolies are a few large firms that dominate an industry and have differentiated products, high barriers to entry, and some degree of pricing power.

C. Near monopolies are firms that have accrued significant market power and thereby are changing the industry structure in their favor. Near monopolies are firms that have accrued significant market power and thereby are changing the industry structure in their favor.

Which of the following statements is true about strategic groups? A. It is not possible to have two different strategic groups within the same industry. B. Rivalry within the same strategic group tends to be lower than rivalry between different strategic groups. C. Profitability varies between different strategic groups. D. Companies within the same strategic group are complementors to each other.

C. Profitability varies between different strategic groups. Some strategic groups tend to be more profitable than others. This difference implies that firm performance is determined not only by the industry to which the firm belongs, but also by its strategic group membership.

In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true? A. Samsung apps are tailored exclusively for Google smartphones and tablets. B. Google's smartphones increase in value because they face strong buying power from Samsung. C. Samsung's smartphones increase in value when they are preinstalled with Google's Android system. D. Google accounts for a large quantity of Samsung's overall sales.

C. Samsung's smartphones increase in value when they are preinstalled with Google's Android system. In the smartphone industry, Google is a complementor to Samsung. The Korean high-tech company's smartphones are more valuable when they come with Google's Android system preinstalled.

Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services? A. The competition in the industry is insignificant. B. The number of buyers in the industry is small. C. The firms can differentiate their product offerings. D. The entry barriers in the industry are extremely high.

C. The firms can differentiate their product offerings. In a monopolistically competitive industry, managers selling a product with unique features tend to have some ability to raise prices. When a firm is able to differentiate its product or service offerings, it carves out a niche in the market in which it has some degree of monopoly power over pricing, thus the name "monopolistic competition."

What is the rule of thumb behind Porter's five forces model? A. The stronger the five forces, the greater the industry's profit potential—making the industry less attractive. B. The stronger the five forces, the lower the industry's profit potential—making the industry more attractive. C. The weaker the five forces, the greater the industry's profit potential—making the industry more attractive. D. The weaker the five forces, the lower the industry's profit potential—making the industry less attractive.

C. The weaker the five forces, the greater the industry's profit potential—making the industry more attractive. The weaker the five forces, the greater the industry's profit potential—making the industry more attractive.

Which of the following firms will most likely not be a complementor to a firm that manufactures computers? A. a company that develops operating software B. a company that develops application software C. a company that manufactures its own brand of desktops and laptops D. a company that manufactures portable external disks

C. a company that manufactures its own brand of desktops and laptops A company that manufactures its own brand of desktops and laptops will most likely not be a complementor to a firm that manufactures computers. A company is a complementor 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.

Golden Harvest is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Golden Harvest's strategic group? A. a nearby fast-food restaurant B. a food kiosk in an adjacent subway station C. a premium rooftop restaurant in the same city D. a mobile food cart parked opposite to the five-star hotel

C. a premium rooftop restaurant in the same city A premium rooftop restaurant in the same city will be a part of Golden Harvest's strategic group. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. Companies in the same strategic group are direct competitors.

A new company named Far Reach Inc. entered the radio retail business. In response, two incumbent radio retailers, Smooth Waves and Clear Signal, lowered the cost of their travel alarm radios and long-distance radios. Also, they spent more money to improve these radios. By doing this, Smooth Waves and Clear Signal A. decreased industry exit barriers. B. increased industry exit barriers. C. decreased industry profit potential. D. increased industry profit potential.

C. decreased industry profit potential. Potential new entries in an industry decrease profit potential in two major ways. Incumbent firms may lower prices to make entry appear less attractive to the potential new competitors. Incumbent firms may spend more to satisfy their existing customers.

In the _____ developed by Michael Porter, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes. A. PESTEL framework B. VRIO framework C. five forces model D. value chain analysis

C. five forces model In Porter's five forces model, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

In an industry, the rivalry among existing competitors is high when A. fixed costs are low and marginal costs are high. B. exit barriers are low. C. incumbent firms are highly committed to the business. D. industry growth is high.

C. incumbent firms are highly committed to the business. 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 A. high fixed costs. B. low employee turnover. C. larger output. D. high capital risks.

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

Which of the following is a macroeconomic factor that can affect a firm's strategy? A. power of buyers B. power of suppliers C. levels of employment D. threat of substitutes

C. levels of employment Levels of employment are a macroeconomic factor that can affect a firm's strategy. In boom times, unemployment tends to be low, and skilled human capital becomes scarce and more expensive. In economic downturns unemployment rises. As more people search for employment, skilled human capital is more abundant and wages usually fall.

In Rozinia 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? A. monopolistic competition B. oligopoly C. natural monopoly D. perfect competition

C. natural monopoly This scenario best illustrates a natural monopoly. Without a natural monopoly, the governments involved believe the market would not supply these products or services at all. Public utilities supplying water, gas, and electricity to businesses and homes are frequently monopolists. These are so-called natural monopolies.

Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls 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 Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.? A. economies of scale B. high capital requirement C. network effects D. high fixed costs

C. network effects In this scenario, network effects are acting as an entry barrier for Clear Calls Inc. Network effects describe the positive effect (externality) that one user of a product or service has on the value of that product or service for other users. When network effects are present, the value of the product or service increases with the number of users.

Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely A. easily achieve a temporary competitive advantage. B. easily achieve a sustainable competitive advantage. C. only achieve competitive parity. D. maintain its absolute advantage for long time.

C. only achieve competitive parity. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely only achieve competitive parity. Firms in perfect competition have difficulty achieving even a temporary competitive advantage and can achieve only competitive parity.

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? A. monopoly B. oligopoly C. perfect competition D. monopolistic competition

C. perfect competition The iron ore industry best illustrates a perfect competition. A perfectly competitive industry is characterized as 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.

Home Savings, Good Deals, Hank's Store, and King Bargains are all departmental stores that compete for advantage against each other through everyday low-pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together Home Savings, Good Deals, Hank's Store, and King Bargains form a A. focus group. B. command group. C. strategic group. D. cross-functional group.

C. strategic group. Together Home Savings, Good Deals, Hank's Store, and King Bargains form a strategic group. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. Companies in the same strategic group are direct competitors.

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? A. the automobile business where the company has contractual obligations with suppliers B. the airline business where the company's strategic commitments are long-term C. the e-commerce retail business where investments on assets are low D. the pharmaceutical business where the company has a large number of fixed costs

C. the e-commerce retail business where investments on assets are low BWP would find it most easy to exit the e-commerce retail business where investments on assets are low. Exit barriers are comprised of both economic and social factors. They include fixed costs that must be paid regardless of whether the company is operating in the industry or not. A company exiting an industry may still have contractual obligations to suppliers, such as employee health care and retirement benefits, as well as severance pay. Social factors include elements like emotional attachments to certain geographic locations.

Which of the following do the sociocultural forces in a firm's external environment best represent? A. the interest rates prevalent in an economy B. the laws protecting small enterprises in a nation C. the family size of the firm's target market D. the rate of employee attrition within the firm

C. the family size of the firm's target market Sociocultural factors capture a society's cultures, norms, and values. Demographic trends are also important sociocultural forces. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Which of the following is an implication of low interest rates? A. Cost of capital for firms will be high. B. Firms will invest less in future growth. C. Economic growth rate will fall. D. Consumer demand will increase.

D. Consumer demand will increase. Low interest rates have a direct bearing on consumer demand. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, computers, and even vacations on credit; in turn, all of this demand fuels economic growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates lowers the cost of capital and enhances a firm's competitiveness

Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly? A. Sellers in an oligopoly provide highly differentiated products; in monopolistic competition, the products sold are undifferentiated or standardized. B. In an oligopoly, the number of buyers is large; in monopolistic competition, the number of buyers is limited to three or four. C. Firms in an oligopoly have no pricing power; firms in a monopolistically competitive industry have the ability to raise prices. D. In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.

D. In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other. A monopolistically competitive industry has many firms competing against each other, and an oligopolistic industry is consolidated with few (large) firms.

Which of the following is a primary feature of the five forces model? A. It is concerned exclusively about the intensity of rivalry among direct competitors. B. It takes into account a firm's internal resources, capabilities, and core competencies. C. It helps managers determine the changing speed of an industry or the rate of innovation. D. It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.

D. It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes. In Porter's five forces model, competition is not defined narrowly as the firm's closest competitors, but rather more broadly to include other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes.

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment. A. VRIO framework B. SWOT analysis C. BCG matrix D. PESTEL framework

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

In which of the following situations is the power of suppliers high in an industry? A. Suppliers offer products that are undifferentiated. B. Suppliers can credibly threaten to backward integrate into the industry. C. Suppliers depend heavily on the industry for their revenues. D. Suppliers' industry is more concentrated than the industry it sells to.

D. Suppliers' industry is more concentrated than the industry it sells to. The power of suppliers is high when suppliers' industry is more concentrated than the industry it sells to.

Which of the following is most likely an implication of new firms entering an industry? A. The bargaining power of buyers will reduce. B. The industry's overall profit potential and sales will increase. C. The rivalry among existing competitors will reduce. D. The incumbent firms will spend more to satisfy their existing customers.

D. The incumbent firms will spend more to satisfy their existing customers. The threat of entry by additional competitors may force incumbent firms to spend more to satisfy their existing customers. Larger investments in value creation further reduce an industry's profit potential if prices cannot be raised.

What is most likely to happen when there is too much money in an economy? A. There are too many goods and services. B. There is a drop in interest rates. C. There is high economic growth. D. There is an increase in prices.

D. There is an increase in prices. Too much money in an economy is characterized by rising prices—inflation. Inflation tends to go along with higher interest rates and lower economic growth.

How did Virgin America enter the airline industry despite the industry's notoriously low profitability? A. Virgin America offered average-cost service between small and large metropolitan cities in the American West. B. Virgin America offered average-cost service between major metropolitan cities along the American East Coast. C. Virgin America offered low-cost service between small and large metropolitan cities in the American South. D. Virgin America offered low-cost service between major metropolitan cities on the American East and West coasts.

D. Virgin America offered low-cost service between major metropolitan cities on the American East and West coasts. Virgin America offered low-cost service between major metropolitan cities on the American East and West Coasts.

The Beacon is a newspaper that sold print copies of its paper in a medium-sized town in Kansas for more than 100 years. Recently, the Beacon signed a deal with IntelNews Inc. to present the paper digitally to homes and businesses. This example shows A. a monopoly. B. an oligarchy. C. monopolistic competition. D. an industry convergence.

D. an industry convergence. This example shows industry convergence because it reveals how formerly unrelated industries can be used together to satisfy the same customer need.

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through A. forward integration. B. product differentiation. C. crowdsourcing. D. backward integration.

D. backward integration. In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through backward integration. Buyers are powerful when they can credibly threaten backward integration. Backward integration occurs when a buyer moves upstream in the industry value chain, into the seller's business.

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 A. profitability increases. B. perfect competition. C. natural monopolies. D. cutthroat competition.

D. cutthroat competition. Such competitive actions are indicative of cutthroat competition and a low profit potential in the traditional fast-food industry

When applying the five forces model, the first step should ideally be A. drawing a strategic-group map. B. identify the underlying drivers of each force. C. assessing the overall industry structure. D. defining the relevant industry.

D. defining the relevant industry. In the five forces model, industry boundaries are drawn by identifying a group of incumbent companies that face more or less the same suppliers and buyers. This group of competitors is likely to be an industry if it also has the same entry barriers and a similar threat from substitutes. In this model, therefore, an industry is defined by commonality and overlap in the five competitive forces that shape competition.

Which of the following is a feature of an oligopolistic industry structure? A. many small sellers B. standardized or undifferentiated products C. limited pricing power D. high entry barriers

D. high entry barriers An oligopoly has a few large firms, differentiated products, and high entry barriers.

A fragmented industry is made into a consolidated industry through A. governmental deregulation. B. globalization. C. technological innovation and new legislation. D. horizontal mergers and acquisitions.

D. horizontal mergers and acquisitions. Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through (horizontal) mergers and acquisitions.

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A. if the company is able to put up a credible threat of retaliation B. if the capital requirements in the industry are high C. if the customer switching costs in the industry are high D. if the industry has recently become deregulated

D. if the industry has recently become deregulated A company will most likely face the highest threat of entry if the telecommunications industry has recently become deregulated.

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate? A. ecological factors B. sociocultural factors C. technological factors D. legal factors

D. legal factors This mandate best indicates legal factors in a firm's general environment. The legal environment captures the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions—all of which can have a direct bearing on a firm's profit potential.

An industry has many firms that compete in it. While products between competitors tend to be similar, they are by no means identical. As a consequence, managers selling a product with unique features tend to have some ability to raise prices. This type of industry is an example of A. oligopoly. B. monopoly. C. perfect competition. D. monopolistic competition.

D. monopolistic competition. Monopolistic competition has many firms, some pricing power, and differentiated product.

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) A. oligopoly. B. monopoly. C. perfectly competitive industry. D. monopolistically competitive industry.

D. monopolistically competitive industry. In this scenario, Curry Rush is most likely operating in a monopolistically competitive industry. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

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? A. monopoly B. perfect competition C. monopolistic competition D. oligopoly

D. oligopoly These companies are most likely in an oligopolistic industry, which is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. In oligopoly, non-price competition is the preferred mode of competition.

In which of the following industry competitive structures do selling firms have the lowest pricing power? A. monopolistic competition B. monopoly C. oligopoly D. perfect competition

D. perfect competition A firm competing in perfectly competitive industry has little or no ability to raise its prices. This is because the commodity product offerings are more or less identical.

A firm's strategic position is likely to be strong when A. the entry barriers within the industry it operates in are low and the exit barriers are high. B. its suppliers and vendors can easily forward integrate and buyers can backward integrate. C. all the five forces in Porter's model are strong. D. the gap between the value the firm's product generates and the cost to produce it is large.

D. the gap between the value the firm's product generates and the cost to produce it is large. A firm's strategic position relates to its ability to create value for customers (V) while containing the cost to do so (C). Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it.

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? A. the emergence of entry barriers B. the bargaining power of suppliers C. the availability of complements D. the threat of substitutes

D. the threat of substitutes When fashion magazines face competition from fashion blogs on the web, the threat of substitutes gets stronger. The threat of substitutes is the idea that products or services available from outside the given industry will come close to meeting the needs of current customers. The threat of substitutes is high when the substitute offers an attractive price-performance trade-off or when the buyer's cost of switching to the substitute is low.

Why do companies use strategic group models? A. to reveal product differences between firms in the same industry B. to reveal potential areas of industry convergence between firms in different industries C. to reveal common threads between firms in different industries D. to reveal performance differences between clusters of firms in the same industry

D. to reveal performance differences between clusters of firms in the same industry Companies use strategic group models to reveal performance differences between clusters of firms in the same industry.

Which of the following features about a buyer indicates that the buyer has high bargaining power? A. when the buyer cannot credibly threaten to backwardly integrate into the industry B. when the buyer cannot purchase specific products from other sellers C. when the buyer faces high switching costs D. when the buyer operates in an industry where products are undifferentiated

D. when the buyer operates in an industry where products are undifferentiated The power of buyers is high when the industry's products are standardized or undifferentiated commodities.