ECO4104 Exam 3

Given the following payoff diagram: Firm 2 Aggres Passive Firm 1: Aggres 40,10 55,15 Passive 50, 25 70, 20 How much can firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?

a a) 5 b) 10 c) 15 d) 20 e) 20

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

a a) A firm following a strategy of cost leadership is following a generic strategy narrow in scope b) A firm can follow a cost leadership strategy through achieving benefit parity by making products with the same B, but at a lower C than its rivals c) A firm can follow a cost leadership strategy through achieving benefit proximity by offering a B that is not much less than those of competitors d) A firm following a strategy of cost leadership creates more value than its competitors by offering products that have a lower C than those of its rivals e) A firm can follow a cost leadership strategy by offering a product that is qualitatively different from that of its rivals

Which of the following factors requires the least consideration when assessing supplier power relative to the downstream industry it sells to?

a a) Competitiveness of the output market b) Purchase volume of downstream firms c) Availability of substitute inputs d) Threat of forward integration by suppliers e) Ability of suppliers to price discriminate

Which of the following does not tend to affect the threat of entry?

a a) Expectations about pre-entry competition b) Government protection of incumbents c) Consumers highly valuable reputation/consumers are brand loyal d) Experience curve e) Network externalities

Price competition is increased when which of the following occurs??

a a) Many sellers in the market b) Products are differentiated c) Firms are producing at capacity d) Buyers have high switching costs e) Firms purchase raw materials from the same suppliers

Which of the following factors requires the least consideration when assessing supplier power relative to the upstream industry in which it buys raw materials?

a a) Number of competitors in downstream market b) Purchase volume of raw materials c) Availability of substitute inputs d) Number of upstream suppliers e) Ability of suppliers to price discriminate

Which of the following statements best describes a characteristic of geographic specialization focus strategies?

a a) Offers a variety of products and/or sells to a variety of customer groups within a narrow geography b) Offers an array of product varieties to a limited class of customers c) Caters to the particular needs of the customer group served d) Offers a limited set of products to an array of different customer groups e) Does an especially good job satisfying a subset of the needs of the consumer groups being served

What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing whether the firm's commitment is likely to result in a product market position in which the firm delivers superior benefits to consumers or operates with lower costs than competitors?

a a) Positioning analysis b) Sustainability analysis c) Flexibility analysis d) Judgment analysis e) Final Commitment analysis

Cooperative pricing is NOT helped by which of the following situations?

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

Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?

a a) Price umbrella b) Price leading c) Predatory pricing d) Premium pricing e) Price lining

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

a a) Real option b) Commitment option c) Project option d) Decision option e) Future option

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

a a) Same consumer surplus b) Same maximum willingness-to-pay c) High consumer surplus d) Low consumer surplus e) Same competitive advantage

The steepness (slope) of an indifference curve indicates which of the following?

a a) The tradeoff a consumer is willing to make between price and quality b) The change in price holding product benefit constant c) The change in benefit holding price constant d) The tradeoff between consumer surplus and producer surplus e) None of the above

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

a a) Value-added analysis b) Value creation analysis c) Market value analysis d) Value benefit drivers e) Value cost drivers

Which of the following best describes a focus strategy?

a a) When a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both b) When a firm sells products manufactured with raw materials from monopoly suppliers c) When a firm is the only one selling specific products d) When a firm faces many competitors and charges a lower price e) None of the above

Which of the following best describes a tit-for-tat strategy?

b a) A firm charges a fixed price to every customer b) A firm is prepared to match whatever change in strategy a competitor makes c) A firm offers discounts for purchasing in quantity d) A firm requires customers to enter into long-term purchase contracts e) None of the above

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

b a) Backward induction b) Focal point c) Always aggress d) Coordination e) Folk

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

b a) Breakfast cereal b) Prime-rate loan c) Tobacco d) Steel until 1960s e) Fast food hamburger

Benefit proximity refers to which of the following?

b a) Competing firms offering products with exactly the same benefit b) Cost leading firms offering products with slightly less benefit c) Product benefits that cannot easily be differentiated by the consumer d) Cost leading firms offering products with slightly more benefit e) The inability for competing firms to produce products with similar benefits

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

b a) Consumer packaged good b) Search good c) Experience good d) Automobile e) Appliance

What term describes a decision that has a long-term impact and is difficult to reverse?

b a) Dedicated investment b) Strategic commitment c) Critical choice d) Market investment e) Firm commitment

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

b a) Entrants divide market demand among fewer sellers b) Entrants decrease market concentration c) Entrants usually grow the market for all parties d) Entrants increase market concentration e) Entrants reduce internal rivalry

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

b a) Experience goods b) Search goods c) Retail goods d) Consumer goods e) Credence Goods

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

b a) Having enough money to purchase all necessary goods and services b) Finding the seller that offers the highest value of B - P c) Determining the quality of products d) Locating sellers that provide the required products e) Selecting between brand products and non-brand products

What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market?

b a) Industry effect b) Competitive advantage c) Business unit effect d) Competitive position e) Market profitability economics

Which of the following statements is true about a soft commitment?

b a) It is bad for competitors b) It is good for competitors c) In Cournot competition, capacity expansion is an example of a soft commitment d) In Betrand competition, a commitment to reduce prices is an example of a soft commitment e) Tough commitments are always in the best interest of a firm

Which of the following statements is true about a tough commitment?

b a) It is good for competitors b) It is bad for competitors c) In Cournot competition, elimination of production facilities is an example of a tough commitment d) In Betrand competition, a commitment to increase prices is an example of a tough commitment e) Tough commitments are always in the best interest of a firm

Which of the following conditions does not tend to heat up price competition?

b a) Many sellers in the market b) Products are differentiated/buyers have high switching costs c) Some firms have excess capacity d) The industry is stagnant or declining e) There are large/infrequent sales orders

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

b a) Marginal profit per unit of production b) Value added analysis c) Cost-benefit analysis d) Input-output analysis e) Sales-per-cost analysis

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

b a) McKinsey 7-S Framework b) Value net c) BCG Market Share Matrix d) 6 C's of Marketing e) 4 P's of Marketing

Which of the following is a complement to professional sports?

b a) Merchandise sales b) Gambling c) Luxury Boxes at stadiums d) Food and beverage sales e) None of the above

What kind of strategy is one by which a firm exploits its benefit or cost advantage through a higher market share rather than through high price-cost margins?

b a) Pricing strategy b) Share strategy c) Margin strategy d) Focus strategy e) Generic strategy

Substitutes erode profits because of which of the following factor?

b a) Substitutes compete for similar inputs driving up production costs b) Substitutes divide demand and drive up internal rivalry c) Firms producing substitutes use similar worker skills dividing the labor pool d) Manufacturers of substitutes enter markets later and have lower sunk costs e) None of the above

Which of the following is a trend that Chicago area hospitals should least likely be worried about with respect to pricing?

b a) The FTC recently won an antitrust case that forced the members of the Evanston Northwestern Healthcare system to negotiate independently with insurers b) There has been considerable consolidation (hospital mergers) in regional submarkets, including the city of Chicago and the important North Shore suburbs c) Employers are asking employees to bear more of their own health care costs. At the same time some employers are reconsidering the decision to opt for wide, but costly MCO networks d) If regulatory barriers fall, entry by specialty hospitals in wealthier communities could skim off some of the areas' most profitable patients e) Employers, payers, regulators and patients are demanding and getting more information about hospital quality

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

b a) The decrease in demand caused by the increase in quality and the incremental profit earned on each additional unit sold b) The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold c) The increase in demand caused by the increase in quality and the incremental loss on each additional unit sold d) The decrease in demand caused by the increase in quality and the incremental loss on each additional unit sold e) The quality of changes to the original product and the decrease in demand cause by the changes in quality

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

b a) Value chain b) Generic strategy c) Benefit leadership d) Cost Leadership e) Focus

Which of the following is true about hospital industry profits from 1980 to 2000 and a five forces analysis?

b a) Virtually every factor caused profits to increase b) Virtually every factor caused profits to decrease c) Most factors are not applicable to the industry d) The Value Net cannot be used to evaluate the industry e) None of the above

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

c a) Advertising b) Certification c) Disclosure d) Notice e) Broadcasting

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

c a) All pricing decisions should be made unilaterally. Avoid direct contacts with competitors about price b) Carefully handle public pricing communications c) Always share analyses of probably competitive reactions d) Monitor the content. Announce price changes; do not lecture competitors about the need to raise prices or consequences of reducing them e) Clear your pricing tactics with an attorney well versed in antitrust law

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

c a) Apparel b) Search good c) Experience good d) Office furniture e) Airline tickets

Which of the following represents total surplus in the value creation equation, (B-P) + (P-C)?

c a) B + C b) P + C c) B - C d) P - C e) None of the above

What professional sports complement poses the biggest dilemma?

c a) Cheerleaders b) Mascots c) Gambling d) Television e) Radio

Which of the following best describes the term, internal rivalry?

c a) Divisions competing within a firm for resources b) Differing product lines from one manufacturer competing c) Firms jockeying for share within a market. d) Firms competing for resources to produce goods e) Suppliers dividing factors between competing firms

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

c a) Economic profit b) Excess total surplus c) Gains from trade d) Consumer surplus excess e) Benefit - Benefit transaction

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

c a) Five forces b) Value creation c) Value chain d) Consumer surplus e) Producer surplus

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

c a) Generic strategy b) Margin strategy c) Focus strategy d) Share strategy e) Broad-coverage strategy

Which of the following is not a significant entry barrier in the commercial airframe manufacturing market?

c a) High development costs b) Learning curve in production c) Raw materials and labor d) Airlines prefer to purchase from the same manufacturer e) Airlines are reluctant to purchase from startups

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

c a) Medicaid b) Admitting physicians c) Hospital-based physician d) Patients e) Medicare

Which of the following practices CANNOT help firms facilitate cooperative pricing?

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

What kind of strategy is one by which a firm maintains price parity with its competitors and profits from its benefit or cost advantage primarily through high price-cost margins, rather than through a higher market share?

c a) Pricing strategy b) Share strategy c) Margin strategy d) Focus strategy e) Generic strategy

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

c a) Regression testing b) Virtual reality c) War gaming d) Commitment testing e) Scenario testing

Which of the following is not a factor that could intensify internal rivalry in the Chicago hospital market?

c a) Relatively large number of hospitals b) Considerable variation in production costs c) Relatively small number of doctors d) Excess capacity e) Aging baby boomers increasing demand for admissions

Which of the following is not a part of the five-forces framework?

c a) Supplier Power b) Internal rivalry c) Regulation d) Buyer Power e) Substitutes and Complements

What type of effect describes how a commitment impacts the present value of the firm's profits, assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?

c a) Tactical effect b) Financial effect c) Direct effect d) Strategic effect e) Indirect effect

Which of the following is not a common characteristic of capabilities?

c a) They are valuable across multiple products or markets b) They are tacit c) They are easy to reduce to simple algorithms or procedure guides d) They are embedded in what Richard Nelson and Sidney Winter call organizational routines - well-honed patterns of performing activities inside an organization e) They can persist even though individuals leave the organization

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

c a) Value creation b) Competitive advantage c) Consumer surplus d) Maximum willingness-to-pay e) Value chain

Which of the following is a resource?

d a) Brand promotion skills b) Yield management capabilities c) Ability to manage sourcing and procurement functions d) Workers with firm-specific expertise or know-how e) Ability to integrate order-taking, procurement, manufacturing and out-bound logistics

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

d a) Five forces b) Value creation c) Value chain d) Stuck in the middle e) Generic strategy

Which of the following is not a feature of selective contracting (used by Managed Care Organizations) that intensified internal rivalry?

d a) Had infrequent (contract lengths of two to three years) and lumpy (one insurer may have represented over 5% of a hospital's business) sales b) Treated all hospitals as identical c) Kept price negotiations between insurers and hospitals secret, encouraging hospitals to lower prices to win contracts d) Contracted with hospitals that patients were most loyal to e) Created pressure for hospitals to win each individual contract with no thought of future consequences

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

d a) Industry breakdown matrix b) Industry five forces matrix c) Industry value creation matrix d) Industry segmentation matrix e) Industry dimensions matrix

Which of the following is not a potential limitation of the five-forces framework?

d a) It pays little attention to factors that might affect demand b) It focuses on a whole industry rather than on individual firms that may occupy unique positions that insulate them from some competitive forces c) The framework does not explicitly account for the role of government, except when government is a supplier or buyer d) The framework provides a structured way to systematically work through wide-ranging and often complex issues e) The framework is a qualitative analysis method

What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?

d a) Low price clause b) Price matching clause c) Best price clause d) Most favored customer clause e) Competitive price clause

Which of the following is generally thought of as a buyer in the hospital industry?

d a) Pharmaceutical drug houses b) Medical equipment companies c) Technician d) Patients e) Nurse

When multiple firms' price-quality positions line up along the same indifference curve offering a consumer the same amount of consumer surplus, what term describes the situation?

d a) Price-quality parity b) Price matching c) Maximum willingness-to-pay d) Consumer surplus parity e) Consumer surplus

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

d a) Raw materials suppliers b) Airlines c) Aircraft leasing companies d) Unions e) Passengers

What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?

d a) Response strategy b) Always cooperate strategy c) Always aggress strategy d) Tit-for-tat strategy e) Trigger strategy

When consumers learn about one seller at a time it is known as a :

d a) Simultaneous search b) Parallel search c) Serial search d) Sequential search e) Divided search

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

d a) Substitutes and Complements b) Competition c) Customer power d) Seller power e) Buyer power

Consumer surplus is measured as which of the following?

d a) The excess of sales price over manufacturing cost b) The amount a consumer pays for a good minus search costs c) The perceived manufacturing cost by a consumer as a percentage of sales price d) The perceived benefit of a product per unit consumed minus the product's monetary price e) The loss incurred by a firm selling at a price below its manufacturing cost

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

d a) They cause an increase in detection lags because competitor prices become more difficult to monitor b) There is a resultant decrease in the frequency of interaction between competitors c) There is an increase in the probability of misreads d) The is an increase in temptation to cut price, even if competitors are expected to match e) There is an increase in detection lags because prices of competitors are more difficult to monitor

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

d a) Tough commitment b) Strategic complement c) Soft commitment d) Strategic substitute e) Duopoly

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

d a) Value creation b) Competitive advantage c) Consumer surplus d) Maximum willingness-to-pay e) Value chain

Which of the following is a characteristic of an experience good?

d a) Warranty service is included in the sales price b) An independent evaluation certifies the product c) The product is heavily advertised d) Quality can be assessed only after the customer has used it for a while e) Noen of the above

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

e a) B b) P c) C d) B-P e) P-C

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

e a) Broad-coverage strategy b) Focus Strategy c) Geographic specialization d) Product specialization e) Customer specialization

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

e a) Clunker market b) Quality conundrum c) Car scrapping market d) Low-quality market e) Lemons market

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

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

What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?

e a) Dedicated pricing b) Strategic pricing c) Marginal pricing d) Cost-plus pricing e) Cooperative pricing

Which of the following is not a barrier to entry in professional sports markets?

e a) Each league has rules governing the addition of new franchises b) Potential new owners must pay current owners hundreds of millions of dollars c) Most potential owners must offer to build new stadiums d) Incumbent teams have rights to veto franchises in their own geographic markets e) Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped

What type of entrant would be described as a new entrant with no current brand identity, distribution channels or presence within an industry?

e a) Fast follower b) Passive c) Aggressive d) Innovator e) De novo

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

e a) Generic strategy b) Margin strategy c) Focus strategy d) Share strategy e) Broad-coverage strategy

Why might a firm not be able to react quickly to competitors' pricing moves?

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

Which of the following trends or methods has since helped reduce the pricing rivalry that had intensified by the late 1990s?

e a) Patients began accepting MCOs with "narrow networks" and MCOs had the upper hand in negotiating with hospitals for inclusion in networks b) Hospitals removed brand identities c) Hospitals dropped "centers of excellence" from their hospitals d) Hospitals consolidating away from related products e) Hospitals consolidated (conducted mergers)

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

e a) Price cutting is easier to detect when demand conditions are volatile b) Pricing coordination becomes easier in a volatile demand condition because firms are chasing a moving target c) Price cutting is harder to detect when demand conditions are stable d) Demand volatility is an especially serious problem when the production involves substantial variable costs e) Demand volatility is an especially serious problem when the production involves substantial fixed costs

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

e a) Substitutes and Complements b) Competition c) Customer power d) Seller power e) Buyer power

Which of the following is a component of the Value Net?

e a) Suppliers b) Customers c) Competitors d) Complementors e) All of the above

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

e a) They can sell their services to the lowest bidder b) They are always concentrated c) Their customers are always locked into relationships with them d) The price they charge never depends on supply and demand in the upstream market e) The can sell their services to the highest bidder

Who are the most powerful suppliers in professional sports?

a a) Players unions b) Referees c) Owners d) Politicians e) Cities

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

a a) Simultaneous search b) Parallel search c) Serial search d) Sequential search e) Divided search

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

a a) Uniform delivered pricing b) Uniform FOB pricing c) Uniform customer pricing d) Uniform favored pricing e) Uniform competitive pricing

Which of the following is the most likely substitute for commercial aircraft travel between Chicago and Tokyo?

b a) Bicycle b) Teleconferencing c) Automobile d) Commuter train e) Walking

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

d a) B b) P c) C d) B-P e) P-C

Which of the following is a capability?

e a) Patents and trademarks b) Brand-name reputation c) Installed base d) Organizational culture e) Sourcing skills

Which of the following is not a way teams "collude" within professional sports markets?

a a) Agreeing on ticket prices b) Agreeing on rules and schedules c) Employing the same pool of referees d) Sharing national broadcast revenues e) Agreeing on rookie drafts

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

a a) Subsidies b) High-interest loans c) Helping to ensure scope economies from military aircraft division d) Paying in excess of cost for military aircraft e) Guaranteeing a set level of annual aircraft purchases

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

d a) A strategy where a firm will always aggress regardless of how the other firm acts b) A strategy where a firm will always cooperate regardless of how the other firm acts c) A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes d) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses e) A strategy in which a firm is prepared to aggress when its opponent cooperates and cooperate when its opponent aggresses

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

d a) Availability of close substitutes and/or complements b) Price-value characteristics of substitutes/complements c) Price elasticity of industry demand d) All of the above e) None of the above

Which of the following is not a component of the Value Net?

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

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

e a) Frontier curve b) Learning curve c) Level curve d) Implicit curve e) Indifference curve