Contemporary Strategy Analysis Text and Cases Edition 9th Edition Test Bank
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TESTBANK: CHAPTER 04
Further Topics in Industry and Competitive Analysis
True/False Questions
1. Porter’s five forces model offers a rigorous,
empirically validated approach to explaining the variation in profitability
across industries
[See pp.90-91]
1. T
*b. F
2. Industries are the central arenas in which
competition takes place. Disaggregating industries into segments and groups of
firms add little to our understanding of competition.
[See p.90]
1.
T
*b. F
3. Industry membership is the single most
important source of profitability differences between firms.
[See p.91]
1. T
*b. F
4. The profitability of making inkjet cartridges
depends critically upon their complementary relationship with between inkjet
printers.
[See p.92]
*a. T
1. F
5. The value of a product to its consumers tends
to be reduced by availability of close substitutes. Similarly, the value if a
product to its consumers is reduced by the availability of complements.
[See p.92]
1. T
*b. F
6. While the profitability of supplying a product
tends to be reduced by availability of close substitutes, the effect of
complements on profitability is less clear: it depends upon how value is shared
among the suppliers of the different complements.
[See p.92]
*a. T
1. F
7. When products A and B are complements, the
division of profit between the supplier of A and the supplier of B will depend
upon which builds the stronger market position and is better able to reduce the
value contributed by the other.
[See p.92]
*a. T
1. F
8. In supplying video game systems, the suppliers
of consoles are no longer in such a strong position to appropriate the major
profits because of increasingly intense competition among the three of them
(Sony, Microsoft and Nintendo), and the growing size and power of the suppliers
of video games.
[See pp.92-93]
*a. T
1. F
9. The Schumpeterian view of competition
emphasizes the role of innovation and entrepreneurship
[See p.93]
*a. T
1. F
10. In common with the Porter five forces
framework, the Schumpeterian approach views competitive behavior as the outcome
of industry structure.
[See p.93]
1. T
*b. F
11. In hypercompetitive markets, the quest for
sustainable competitive advantage is the overwhelmingly important priority for
firm strategy.
[See p.95]
1. T
*b. F
12. Empirical studies on hypercompetition show
unanimously that industries are becoming increasingly turbulent and competitive
advantage increasingly short-lived
[See p.95]
1. T
*b. F
13. Game theory seeks to predict the outcome of
competitive situations by modeling the interactive decisions by firms,
[See p.95]
*a. T
1. F
14. In the world of business, competition and
cooperation seldom coexist.
[See p.96]
1. T
*b. F
15. The propensity for similar businesses to
cluster in the same locality (e.g. IT companies in Silicon Valley, insurance
companies in London) is evidence of the intensity of the competitive instincts
that drive business owners.
[See p.96]
1. T
*b. F
16. “Deterrence” can be defined as imposing costs
on the other players for actions that we deem to be desirable
[See p.93]
1. T
*b. F
17. The tendency for both Coca-Cola and Pepsi to
compete through large advertising budgets which have little impact on their
relative market shares cannot be a true example of a “prisoners’ dilemma”
because both firms remain highly profitable.
[See p.97]
1. T
*b. F
18. The “prisoners’ dilemma” can be resolved by
changing the payoffs in a way that induces cooperative behavior.
[See p.97]
*a. T
1. F
19. A “prisoners’ dilemma” situation in which a
failure to cooperate leaves both parties worse off is as likely in a
multi-period game as in a single-period game.
[See p.97]
1. T
*b. F
20. Deterrence is a competitive action that is
more attractive to firms that compete in multiple markets than in a single
market because the resulting reputation can be transferred from one market to
another.
[See pp.96-97]
*a. T
1. F
21. After arriving in Mexico in 1519, the
destruction by Hernan Cortes of his own ships was a signal, in game theory
terminology, of “commitment” for his troops to the conquest of the Aztec empire
[See p.98]
*a. T
1. F
22. When applied to real business situations, the
usefulness of game theory is enhanced by its ability to predict very different
outcomes on the basis of small changes in initial conditions.
[See p.99]
1. T
*b. F
23. Competitive intelligence involves the
systematic collection and analysis of public information about suppliers and
customers to aid decision making.
[See p.97
1. T
*b. F
24. The aim of competitive intelligence is to
predict competitor behavior on the basis of verifiable facts. Attempts to “get
inside the heads of your rivals” are inherently unreliable and should be
avoided.
[See p.101]
1. T
*b. F
25. A company whose primary goal is profitability
is likely to be a much more aggressive competitor than one whose primary goal
is market share.
[See p.102]
1. T
*b. F
26. The ability to predict a competitor’s behavior
is facilitated by the tendency for the managers within an industry to share
common beliefs about their industry and about the key success factors within
it.
[See p.102]
*a. T
1. F
27. To divide an industry into segments it is
always preferable to focus on the characteristics of different customers rather
than the characteristics of different products.
[See pp.103-104]
1. T
*b. F
28. The more variables that are deployed to
segment a market, the more useful is the resulting segmentation likely ot be.
[See p.104]
1. T
*b. F
29. To analyze the profit potential of different industry
segments, we can use the same Porter five forces of competition framework that
we use to analyze the profit potential of different industries.
[See p.105]
*a. T
1. F
30. In the automobile industry barriers to firms’
mobility between different segments tend to be low, hence profitability
differences between segments are not sustained over long periods of time.
[See pp.105-106]
*a. T
1. F
31. The more similar are key success factors
across the different segments of an industry, the more likely it is that the firms
within that industry will specialize by segment.
[See p.105]
1. T
*b. F
32. Industry segmentation is always horizontal—it is based upon the products an industry
suppliers and the customers to which they are supplied. The notion of vertical segmentation—segmenting an industry along its value chain
is attractive in principle but impossible in practice.
[See p.107]
1. T
*b. F
33. A strategic group is a group of firms in an
industry that serving the same market segment.
[See p.108]
1. T
*b. F
34. The main usefulness of strategic group
analysis is in analyzing interfirm profitability
differences within an
industry; it is less useful as a tool for describing the strategic positioning
of firms within an industry.
[See p.108]
1. T
*b. F
Multiple Choice Questions
35. A key limitation of Porter’s five forces model
of competition is that:
[See p.93]
1. It looks only at single industries not at
relationships between industries
*b. Competitors’
strategies may shape industry structure, rather than structure shaping
competition
1. Industries are more complexity than can be
reduced to five competitive forces
2. The different levels of industry analysis that
the five forces model can be applied to
36. Empirical research shows that proportion of
inter-firm differences in profitability that industry factors explain is:
[See p.90]
1. More than 75%.
2. About half.
*c. Less than 25%.
1. The question is unanswerable because
“industry” is a meaningless concept.
37. The difference between substitute and
complementary products may be summarized as follows:
[See p.92]
*a. Substitutes reduce
the value of a product, whereas complements increase value.
1. Complements reduce the value of a product,
whereas substitutes increase value.
2. Substitutes cannot be used together, whereas
complements must be used in combination.
3. Complementary relationships increase the
profitability of all firms engaged in supplying them; substitute relationships
reduce the profitability of all firms supplying them.
38. Video game consoles and video games are
complementary products: the availability of one increases the value of the
other. In the past the suppliers of consoles were able to appropriate most of
the profits generated by video game systems because:
[See p.92]
1. Video game consoles cost more to develop than
video games.
2. The consoles were more powerful determinant of
the consumer experience than the games.
*c. The console
suppliers controlled technology and distribution giving them more bargaining
power than the suppliers of video games.
1. The console makers—Nintendo, Sony and
Microsoft—had bigger revenues and greater market capitalization than the
suppliers of video games.
39. The producer of a complementary product can
maximize its relative bargaining power by means of:
[See p.93]
1. Adopting a differentiation strategy that
allows it to sell at a premium price.
2. Adopting a cost cutting strategy to provide
its product at the lowest possible cost and so exploit economies of scale.
3. Restricting complementors’ access to the
market.
*d. Commoditizing the
market for the complementary good.
40. Joseph Schumpeter perceived competition among
companies as:
[See p.93]
1. Corresponding closely to economists’ model of
perfect competition where profits are competed away
2. A process of oligopolistic rivalry
*c. A process of
creative destruction
1. A process of punctuated equilibrium in which
periods of stability were interspersed by bouts of intense competition
41. Schumpeter’s process of “creative destruction”
challenges Porter’s five forces of competition framework by:
[See p.91]
1. Introducing concepts of renewal and rebirth
into the analysis of industrial change
2. Recognizing the cooperation is as important in
business as competition
*c. Proposing that
competitive behavior determines industry structure rather than the other way
round
1. Viewing competition is essential for the
renewal of mature and declining industries
42. While the Porter five forces framework is
built upon the structure-conduct-performance model of industrial economics,
Schumpeter’s view of competition as creative destruction builds upon:
[See pp.93 and 95]
1. Game theory.
*b. The Austrian
School view of competition as a dynamic.
1. Oligopoly theory.
2. The Chicago School of economic thought.
43. The key implication of “hypercompetition” in
business is that:
[See p.95]
*a. Competitive
advantage is temporary.
1. Technological change will continue to
accelerate.
2. “If it ain’t broke, don’t fix it” is an
obsolete piece of advice.
3. The concept of Schumpeterian competition needs
to be updated to realities of the 21st century.
44. The prediction that hypercompetition makes
competitive advantage temporary:
[See p.95]
1. Is confirmed by empirical research shows that
the answer is Yes.
2. Is refuted by empirical research shows that
the answer is No.
*c. Has not been
answered by empirical research.
1. Cannot be answered by empirical research
because competitive advantage cannot be measured.
45. The principal value of game theory to the
field of strategic management is in:
[See pp.95-96]
1. Generating more accurate predictions from
competitive situations
2. Extending the theory of competition behavior
to embrace cooperation
3. Extending the analysis of competitive behavior
to the realms of politics, diplomacy, and social behavior
*d. Permitting a more
rigorous framing of competitive situations and strategic decisions
46. In a market where Firm A and Firm B are
leading suppliers, if Firm A initiates a price cut, the likelihood that Firm B
responds with an identical price cut will be greater:
[See pp.96-99]
1. If Firm B’s medium term goal is to maximize
profit.
*b. If Firm B’s medium
term goal is to maximize market share.
1. If Firm B is a private rather than a public
(listed) company.
2. If the market is growing.
47. From a game theory perspective, President
George W. Bush’s inauguration of a “war on terror”:
[See p.98]
1. Represented a commitment by the American
people to success since the imagery and language of war implies either victory
or defeat
2. Signaled to other democratic countries the
America’s desire for cooperation in order to contain a common threat
*c. Lacked
effectiveness as a deterrent since the prospect of a “war” not only fails to
deter potential terrorists, it may encourage them
1. Created a prisoners’ dilemma in which
communication between the US and militant Islamic groups became difficult
48. The key insight from the “prisoners’ dilemma”
game is:
[See p.97]
*a. Competitive
behavior can create an outcome that is inferior for all involved in a situation
1. The principle of “honor among thieves” is
inapplicable either to thieves or to business executives
2. In every social interaction, the inability to communicate
effectively always results in an inferior outcome
3. Trust can play a critical role in creating
favorable outcomes form both crime and business
49. If administering deterrence is costly or
unpleasant for the threatening party, then:
[See pp.96 and 98]
*a. It may lack
credibility
1. It will always lack effectiveness
2. It will need ot be supported by appropriate
signaling
3. It reinforces the power of the threatening
party
50. The relationship between commitment and
strategic options may be beast described as:
[See p.98]
1. Commitments increase the value of real options
2. By committing to a set of options, a firm can
reconcile two sources of value: value from deterring competitors and value from
real options
*c. Making commitments
inevitably involve giving up options
1. The two reside in different realms of
analysis: commitments can be analyzed using game theory; real options can be
analyzed using financial theory
51. Signaling refers to:
[See p.99]
1. Communications that announce your strategic
intentions or plans to rivals
*b. Any deliberate
action that is intended to influence other players’ perceptions or behavior
1. Deception through misinformation
2. Internal communications that divert strategic
orientations and obtain the buy-in of the organization’s key stakeholders
52. The relationship between competition and
cooperation can be described as follows:
[See p.96]
1. Industries either compete or cooperate; if
they cooperate they will be investigated by competition bodies
2. Cooperation and competition may exist in an
industry, but not at the same time
*c. Both can co-exist
simultaneously
1. Both can co-exist at the same time, but not in
the same industry segment or strategic group
53. Competitive intelligence, the systematic
collection and analysis of information about rival firms, is:
[See p.100-101]
1. A practice which, though legal in most
countries, is unethical.
2. Likely to distract firms from their efforts to
establish positions of competitive advantage based upon their distinctive
strengths.
*c. An important
component of a firm’s environmental scanning and strategic analysis.
1. A useful activity because it can help firms
imitate the strategies of their more successful competitors.
54. Competitive intelligence aims to:
[See p.100]
*a. Forecast
competitors’ behavior, predict their reactions, and explore how their behavior
may be influenced
1. Forecast competitors’ future financial
performance and analyze responses to their previous strategic initiatives
2. Explore how rivals’ behavior could be
positively influenced in the firm’s interest, and signal the firm’s strategic
initiatives
3. Collect information about rivals in other
countries and, especially, to forecast their attacks against the focal firm’s
domestic market
55. The distinction between legitimate competitive
intelligence and industrial espionage:
[See p.101]
1. Is clearly defined by legislation and case law
relating to trade secrets
*b. Is not always
clear
1. Is non-existent – they overlap to a great
extent
2. Is easily resolved by hiring a good lawyer
56. To attempt to predict competitive behaviors,
Porter suggests a four-step framework, where analysts must identify:
[See pp’101-102]
*a. The competitor’s
current strategy, its objectives, its assumptions about the industry and
itself, and its available resources and capabilities
1. The competitor’s current strategy, its future
strategy, its assumptions, and its vulnerabilities
2. The competitor’s assumptions about the
industry, its available resources and competencies, its objectives, and its
competitive advantage
3. The competitor’s available resources and
competencies, its objectives, then its competitive advantage, and finally its
performance
57. Segmentation is a process through which:
[See pp.102-103]
1. One can assess the strengths and weaknesses of
any firm in its market
*b. Industries are
divided into specific markets
1. Industries are divided into groups of similar
products
2. Product characteristics are matched with
customer preferences
58. The main use of industry segmentation analysis
is:
[See p.103]
*a. Identify the most
attractive segments for a firm to locate within
1. Understand better the needs of different
customer groups
2. Formulate better marketing strategies
3. Predict the likely evolution of market
structure
59. Barriers to mobility are:
[See p.105]
*a. Barriers that
protect a segment from firms established in other segments of the same industry
1. Barriers that protect incumbents from
established firms in other industries rather than from new start-up companies
2. Obstacles that a firm faces in changing its
strategy
3. Barriers that prevent globalization and
developing a firm’s business abroad
60. A firm will choose to compete across multiple
segments rather than specialize in a single segment if:
[See p.105]
1. It is a publicly-listed company that than a
family owned company
*b. The same resources
and capabilities can be deployed in different segments
1. Segments are defined by distinct
socio-economic groups of customers
2. Barriers to mobility are high.
61. The difference between barriers to entry and
barriers to mobility is:
[See p.105
1. The sources of barriers to mobility are
different than the sources of barriers ot mobility
2. There is no real difference
3. Barriers to mobility are less effective than
barriers to entry
*d. Barriers to entry
protect the industry as a whole whereas barriers to mobility protect segments
within the industry
62. “Profit pool mapping” describes a technique
for:
[See p.104
*a. Analyzing
profitability across different stages of the value chain in an industry
1. Analyzing expenditures across different stages
of the value chain in an industry
2. Analyzing market shares in the different
stages of the value chain in an industry
3. Analyzing different horizontal and vertical
activities and the assessment of their strengths and weaknesses
63. Strategic groups consist of:
[See p.108]
1. Firms that follow similar generic strategies
(e.g. focus or differentiation)
*b. Firms within an
industry that have similar strategies
1. Firms that occupy the same industry segment
2. Firms that target the same customer groups
64. Strategic group analysis is primarily useful
for:
[See p.108]
1. Identifying “blue ocean” opportunities
*b. Describing and
understanding the strategic positioning of firms within an industry
1. Identifying the strategies that are most
conducive ot profitability within an industry
2. Identifying which strategic niches in an
industry are least saturated and therefore have the greatest profit potential
65. In European airline industry, EasyJet, Baltic
Air, WizzAir, and Ryanair:
[See p.108]
1. Have different route networks; therefore
belong to different strategic groups
*b. Have similar
strategies, hence belong to the same strategic group*
1. Belong to the same strategic group and can
therefore be expected to have similar financial performance
2. Have little in common
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