Deck 11: Entry and Exit

Question 1

Which of the following is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity?

A)The investment in excess capacity must be sunk prior to entry
B)The incumbent should have a sustainable cost advantage
C)Market demand growth should be slow
D)The potential entrant should not itself be attempting to establish a reputation for toughness
E)The excess capacity investment must be recoverable prior to entry

Answer 1

E

Question 2

Which term describes the situation where a smaller firm and potential entrant can use the incumbent's size to its own advantage?

A)Jujitsu economics
B)Karate economics
C)Boxing economics
D)Judo economics
E)David and Goliath economics

Answer 2

D

Question 3

What term represents the conduct and performance of firms in the market after entry has occurred?

A)Postentry competition
B)Postentry actions
C)Postentry procedures
D)Postentry diversification
E)Postentry strategic decisions

Answer 3

A

Question 4

Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?

A)Limit pricing
B)Price leading
C)Predatory pricing
D)Quality pricing
E)Capacity expansion

Question 5

What type of entry exists if structural entry barriers are low,and either (1)entry-deterring strategies will be ineffective or (2)the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out?

A)Deterred Entry
B)Judo Entry
C)Stealth Entry
D)Accommodated Entry
E)Blockaded Entry

Question 6

What type of firm is one that is already operating in a particular market?

A)Market leader
B)Entrant
C)Incumbent
D)Market follower
E)Monopolist

Question 7

What type of entry exists if (1)the incumbent can keep the entrant out by employing an entry-deterring strategy and (2)employing the entry-deterring strategy boosts the incumbent's profits?

A)Deterred Entry
B)Judo Entry
C)Stealth Entry
D)Accommodated Entry
E)Blockaded Entry

Question 8

Which of the following is a potential risk of a brand umbrella?

A)The brand umbrella reduces the incumbents sunk cost of introducing a new product
B)The umbrella brand may help the incumbent navigate the vertical chain
C)The brand umbrella allows an incumbent offset uncertainty about the quality of a new product
D)A brand umbrella may make suppliers and distributors more willing to enter relationship specific investments in or sell credit to incumbents
E)If a new product under the umbrella fails, consumers may become disenchanted with the entire brand

Question 9

What situation occurs when a large incumbent sets a low price to drive smaller rivals from the market?

A)Limit pricing
B)Price leading
C)Predatory pricing
D)Quality pricing
E)Capacity expansion

Question 10

What type of entry exists if structural barriers are so high the incumbent need do nothing to deter entry?

A)Deterred Entry
B)Judo Entry
C)Stealth Entry
D)Accommodated Entry
E)Blockaded Entry

Question 11

Which of the following is a method a monopolist firm might use to prevent entry into a market?

A)Limit pricing
B)Predatory pricing
C)Capacity expansion
D)All of the above
E)None of the above

Question 12

What term best describes the paradox which says despite the conclusion that predatory pricing to deter entry appears irrational,many firms are commonly perceived as slashing prices to deter entry?

A)Cloud paradox
B)Credit paradox
C)Entry paradox
D)Chain-store paradox
E)Pricing paradox

Question 13

What is the typical "capacity use" ratio as reported by plant managers to the U.S.Census of Manufacturers annually?

A)40%
B)50%
C)60%
D)70%
E)80%

Question 14

Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs?

A)Limit pricing
B)Price leading
C)Predatory pricing
D)Quality pricing
E)Capacity expansion

Question 15

What is the term defined as the withdrawal of a product from a market?

A)Shut-down
B)Exit
C)Sale
D)Removal
E)Withdrawal

Question 16

Which of the following is not an exit barrier for firms in an industry?

A)Sunk costs
B)Labor agreements or commitments to purchase raw materials
C)Obligations to input suppliers
D)Excess capacity
E)Government restrictions

Question 17

How can incumbents legally erect entry barriers around novel and nonobvious products or production processes?

A)Collusive pricing
B)Predatory pricing
C)Patents
D)Formation of a cartel
E)Price fixing

Question 18

What situation occurs if an incumbent firm with increasing marginal costs or limited capacity sets a price just below the entrants' marginal costs even though the incumbent may be unable to meet all market demand (or possibly may have to sacrifice its profits to do so)?

A)Contestable limit pricing
B)Strategic limit pricing
C)Predatory pricing
D)Quality pricing
E)Capacity expansion

Question 19

What term describes a market where a monopolist cannot raise price above long run average cost?

A)Blockaded
B)Perfectly contestable
C)Accommodated
D)Deterred
E)Predatory

Question 20

Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?

A)DeBeers in diamonds
B)Nike in shoes
C)Pepsi in beverages
D)Subway in sandwich fast food
E)Levis in denim jeans

Question 21

When is reputation a most effective entry barrier?

A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions

Question 22

What term describes a situation where two or more parties expend resources battling each other?

A)Predatory pricing
B)War of attrition
C)Dumping
D)Capacity Expansion
E)Puppy Dog Ploy

Question 23

What term is defined as a firm selling goods at a price below their normal price (and generally below cost)usually as an export in international trade?

A)Predatory pricing
B)Cost plus pricing
C)Dumping
D)Marginal cost pricing
E)Price leading

Question 24

When is predatory pricing a most effective entry barrier?

A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions

Question 25

When are sunk costs a most effective entry barrier?

A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions