Deck 4: Industry and Competitive Analysis

Question 1

The dynamic nature of world markets has made it easier than ever for companies to sustain superior levels of performance.

Answer 1

False

Question 2

In the opening vignette about the proposed merger between Staples and Office Depot it is explained that the FTC and the founder of Staples disagreed about how to define the market in which Staples participates.

Answer 2

True

Question 3

In a perfectly competitive market firms produce the same products, earn no economic profits, and accurate, timely information is available to customers and rivals.

Answer 3

True

Question 4

Competitive advantage is possible when there is a failure of perfectly competitive markets.

Question 5

Industry analysis is a means by which one examines whether the nature of competitive forces makes an industry subject to the purview of the Federal Trade Commission.

Question 6

Key success factors are "rules of thumb" for doing business in an industry that reflect the structural conditions of the industry.

Question 7

An industry is defined as a group of companies who share the same customers and follow the same strategies.

Question 8

Conditions and trends in the general environment that every company must incorporate into its planning are called path trajectories.

Question 9

The growing trend toward obesity in the United States' population can be considered a cultural driving force within the larger social category.

Question 10

One of the most significant changes in the political/legal sector of the general environment was the passage of the Sarbanes-Oxley Act in 2002.

Question 11

The purpose of a five-forces analysis is to identify evolutionary changes in the social contact.

Question 12

Nearly every state in the U.S. requires that cosmetologists undergo several hundreds of hours (or more) of classroom and practical training before becoming licensed. This acts as an entry barrier for the industry.

Question 13

A profit pool is the amount of earnings that a firm divvies up among employees for year-end bonuses.

Question 14

An experience curve can deter entry to an industry because some incumbents achieve low per-unit costs through the cumulative volume of production.

Question 15

The strength of the threat of substitutes is determined by the relative price/performance of substitute products, the switching costs for buyers to obtain and use the substitute, and buyers' propensity to try substitute products.

Question 16

The customers of a grocery store have high bargaining power since they each may spend thousands of dollars a year at the store.

Question 17

The CR₄ measure of concentration is the sum of the squared market share for every participant in an industry.

Question 18

In the absence of state franchise laws, the bargaining power of automobile manufacturers as suppliers to dealers is heightened because the manufacturers can credibly threaten to forward integrate.

Question 19

The concept of equifinality suggests that there is a single, unambiguous path to competitive advantage in an industry.

Question 20

A strategy map uses industry key success factors to show the different approaches that rivals use to attain a competitive advantage.

Question 21

A strategic group is a collection of companies that tend to behave in relatively the same way strategically by focusing on the same subsets of key success factors.

Question 22

The past strategic investments and intentions of firms do not reliably indicate their future strategic directions.

Question 23

Imagine a market in which firms are identical in size, produce the same products, and earn no economic profits. This is called

A) monopolistic competition.
B) an oligopoly.
C) perfect competition.
D) a duopoly.

Question 24

A market in which only one firm sells a product and, thus, reaps all of the profits to be made is called a

A) monopoly.
B) monopsony.
C) government-regulated entity.
D) duopoly.

Question 25

The rules of thumb for doing business in an industry that reflect the structural conditions of that industry are called

A) core competencies.
B) key success factors.
C) distinctive competencies.
D) required assets.

Question 26

The first step toward determining whether an industry is likely to be an attractive place to do business or not is defining the industry. One way to do this is by ascertaining its ________ code.

A) census
B) American manufacturers
C) world production
D) NAICS

Question 27

To understand the conditions and trends in an industry that all firms must account for in their planning one must undertake a(n) _________ analysis.

A) impact
B) secular trend
C) exogenous (or driving) forces
D) cusp-catastrophe

Question 28

Which of the following categories is not a part of a general environmental analysis?

A) social
B) technology
C) economic
D) networking

Question 29

The "baby boomer" generation has had a significant impact on the nature of competition in many industries. The impact of "baby boomers" would most likely be understood within the context of a(n) ________ driving force.

A) social/demographic
B) economic
C) political/legal
D) environmental

Question 30

A ________ model helps one to understand those aspects of the competitive environment that make an industry either attractive or unattractive as a place to earn profits.

A) contingent profitability
B) five-forces
C) global sourcing
D) customer relationship

Question 31

Which of the following is not one of the forces to be examined when performing a competitive analysis?

A) the threat of new entrants
B) the bargaining power of suppliers
C) the threat of price wars
D) the intensity of rivalry

Question 32

An experience curve acts as an entry barrier because

A) companies with industry experience know their customers better.
B) industry participants gain a cost advantage from cumulative production over potential entrants.
C) it allows industry incumbents to spread their fixed costs over a larger volume of production.
D) the federal government assigns experience curves to industries where it wishes to deter foreign competition.

Question 33

An industry faces a high threat from new entrants when

A) capital requirements for entry are large.
B) switching costs for industry customers are low.
C) economies of scale play an important role in the industry.
D) incumbents can be expected to retaliate heavily upon entry.

Question 34

Your local coffee shop gives you a card on which it records your purchases and rewards you with a free cup of coffee after you have bought nine cups. The shop is trying to ensure your loyalty by

A) appealing to your self-esteem needs and making you feel special.
B) differentiating its coffee from that sold by the shop down the street.
C) imposing a switching cost.
D) having the barista address you by name after looking at your card.

Question 35

Which of the following examples best illustrates substitute products or services?

A) eyeglasses and laser surgery to correct one's vision
B) Heineken beer and Budweiser beer
C) McDonald's and Burger King
D) prepaid legal services and traditional, "pay as you go" legal services

Question 36

An industry's buyers have low bargaining power when

A) they have a lot of information about the industry's costs.
B) there are few of them and many incumbents in the industry.
C) the buyers can credibly threaten to make for themselves what they now buy from the industry.
D) each buyer purchases in small volumes from the industry and no one buyer accounts for a large percentage of sales for any industry participant.

Question 37

The Federal Trade Commission calculates a measure of industry concentration before deciding whether or not to approve a merger among rivals in an industry. It is called the

A) CR₄.
B) gini index.
C) Fredericksburg ratio.
D) Herfindahl-Hirschman Index.

Question 38

Suppliers to an industry have high bargaining power when they

A) produce a component that accounts for a large percentage of the value of the industry's product.
B) are few in number compared to the number of industry participants.
C) can credibly threaten to forward integrate into the industry to which they are selling.
D) Suppliers have high bargaining power under all of the above conditions.

Question 39

Which of the following conditions leads to intense rivalry within an industry?

A) The industry is operating at capacity.
B) The industry is experiencing high growth.
C) The industry's products or services are highly differentiated from one another.
D) The exit barriers for the industry are low.

Question 40

Mr. Krabs is thinking about closing The Krusty Krab (much to SpongeBob's chagrin) because he is not making as much money as he once did. Mr. Krabs discovers that there is a large market for used restaurant fixtures and equipment. He also finds that it will be easy to sell his building because it can be converted into any number of other kinds of businesses. Mr. Krabs' research demonstrates the existence of ________ in the restaurant industry.

A) high capital requirements
B) intense rivalry
C) low exit barriers
D) little customer loyalty

Question 41

"How is value created for customers in this industry?" and "What are the critical dimensions of rivalry that enable a company to successfully compete in delivering value to customers?" are two questions whose answers help identify

A) an industry's attractiveness.
B) key success factors (KSFs).
C) potential acquisition targets.
D) the nature of overhead expenses.

Question 42

A visual tool that reveals competitors' relative positions and competitive advantages is a(n)

A) strategy map.
B) contingency table.
C) industry "painting."
D) competence matrix.

Question 43

Which of the following is not a step in creating a strategy map?

A) Identify the KSFs in the industry and measure each competitor on these dimensions.
B) Assess the presence of strategic groups.
C) Make sure the KSFs each provide unique information.
D) Create a scale that shows the precise distance between each rival.

Question 44

A series of strategy maps that show the positions of industry participants at different times can help identify

A) dynamic capabilities.
B) strategic trajectories.
C) performance failures.
D) causal inferences.

Question 45

A strategy map can help identify industry opportunities because it

A) also points out industry threats.
B) illuminates the entry barriers that will deter all but the most persistent firms.
C) shows market positions that are currently under-served or unoccupied.
D) accurately portrays the number of customers in each part of the market.

Question 46

Briefly explain why competitive advantage is possible because of a failure of the idealized state of perfect competition.

Question 47

Describe key success factors (KSFs) and explain why managers should have a good understanding of them.

Question 48

How does one create a strategy map and what can be learned from it?

Question 49

What are the different types of driving forces and how does one use knowledge about them?

Question 50

Thinking over everything that you have learned from the chapter on industry and competitive analysis, what are some of the sources of change that can alter the competitive dynamics in an industry?