Econ Exam 2

Which of the following best describes regression to the mean?

A firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following

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

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

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

Availability of close substitutes and/or complements, Price-value characteristics of substitutes/complements, Price elasticity of industry demand

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

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

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

Broad-coverage strategy

What term best describes clusters of activities that a firm does especially well in comparison with other firms?

Capabilities

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

Competitive advantage

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

Competitiveness of the output market

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

Contracted with hospitals that patients were most loyal to

Which of the following is the weakest an example of a "shock"?

Contracting to use another firm's proprietary process

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?

Cooperative pricing

What term best describes assets that are more valuable when used together than when separated?

Cospecialized

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

Customer specialization

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

De novo

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

Dedicated investment

Size, growth, and character of home demand for a firm's product are examples of what?

Demand conditions

What type of isolating mechanisms increase the economic power of a competitive advantage over time once a firm has acquired that advantage?

Early-mover advantages

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

Entrants decrease market concentration

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

Entrants divide market demand among fewer sellers

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

Firms jockeying for share within a market.

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

Focal point

Which of the following is a complement to professional sports?

Gambling

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

Hospital-based physician

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

Indifference curve

Which of the following is not a Legal Restriction?

Intellectual property

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

It is good for competitors

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

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

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?

Lemons market

Price competition is increased when which of the following occurs?

Many sellers in the market

Which of the following terms best describes a place in which a firm can sell its ideas for full value?

Market for ideas

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

Maximum willingness-to-pay

What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it?

Network effect

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

None of the above

Cooperative pricing is helped by which of the following situations?

Not sure

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

Number of competitors in downstream market

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

P-C

What term best describes the characteristic of a process if past circumstances could exclude certain evolutions in the future?

Path dependence

Which of the following practices can help firms facilitate cooperative pricing?

Price following

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?

Price umbrella

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

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

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

Raw materials and labor

What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following?

Regression to the mean

What term refers to the costs incurred by sellers when they deliver substandard, or defective products?

Reputation costs

What term describes a framework used in strategy based on resource heterogeneity which posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile?

Resource-based theory of the firm

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

Search good

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

Share strategy

Which of the following is a capability?

Sourcing skills

What term describes the optimal allocation of society's resources at a given point in time?

Static efficiency

Which of the following terms best describes an idea, developed by Gary Hamel and C. K. Prahalad, which combines commitment to the firm's ambitions with the flexibility to change with circumstances?

Strategic intent

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?

Stuck in the middle

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

Supplementors

What term refers to the costs incurred by buyers when they change to a different supplier?

Switching costs

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

The can sell their services to the highest bidder

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

The framework provides a structured way to systematically work through wide-ranging and often complex issues

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

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

Consumer surplus is measured as which of the following?

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

Which of the following terms best describes a phenomenon whereby a profit-maximizing firm sticks with its current technology or product concept even though the profit-maximizing decision for a firm starting from scratch would be to choose a different technology or product concept?

The sunk cost effect

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

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

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

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

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

They are easy to reduce to simple algorithms or procedure guides

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

Uniform delivered pricing

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

Unions

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

Value-added analysis

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

War gaming