Deck 7: The Dynamics Competing Across Time

Question 1

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

A) Backward induction
B) Focal point
C) Always aggress
D) Coordination
E) Folk

Answer 1

B

Question 2

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?

A) Tough commitment
B) Strategic complement
C) Soft commitment
D) Strategic substitute
E) Duopoly

Answer 2

D

Question 3

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

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

Answer 3

B

Question 4

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?

A) Tactical effect
B) Financial effect
C) Direct effect
D) Strategic effect
E) Indirect effect

Question 5

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

A) Price leadership
B) Advance announcement of price changes
C) Price following
D) Most favored customer clauses
E) Uniform delivered prices

Question 6

Which of the following commitment strategies involves soft commitment postures,strategic complements for the stage 2 tactical variables,a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader?

A) Top Dog
B) Lean and Hungry Look
C) Mad Dog
D) Puppy-Dog Ploy
E) Fat-Cat Effect

Question 7

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

A) Breakfast cereal
B) Prime-rate loan
C) Tobacco
D) Steel until 1960s
E) Fast food hamburger

Question 8

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

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

Question 9

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

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

Question 10

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

A) Response strategy
B) Always cooperate strategy
C) Always aggress strategy
D) Tit-for-tat strategy
E) Trigger strategy

Question 11

Given the following payoff diagram: Firm 2
Aggressive
Passive
Firm 1
Aggressive
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) 5
B) 10
C) 15
D) 20
E) 20

Question 12

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) Price umbrella
B) Price leading
C) Predatory pricing
D) Premium pricing
E) Price lining

Question 13

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

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

Question 14

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

A) Dedicated investment
B) Strategic commitment
C) Critical choice
D) Market investment
E) Firm commitment

Question 15

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?

A) Low price clause
B) Price matching clause
C) Best price clause
D) Most favored customer clause
E) Competitive price clause

Question 16

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?

A) Dedicated pricing
B) Strategic pricing
C) Marginal pricing
D) Cost-plus pricing
E) Cooperative pricing

Question 17

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

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

Question 18

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

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

Question 19

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

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

Question 20

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

A) Uniform delivered pricing
B) Uniform FOB pricing
C) Uniform customer pricing
D) Uniform favored pricing
E) Uniform competitive pricing

Question 21

Suppose that a firm offers secret discounts to 200 customers in a particular industry to attract those customers from a competitor firm.If there is a 2% probability that any one of those customers will disclose the pricing,what is the probability that the firms competitors will hear from one of those 200 customers? Suppose there are instead 20 buyers to which discounts are offered.What is the probability then that the competitors may find out about one of the discounts?

Question 22

Suppose Firm #1 dominates a market for widgets priced at $100/unit with a marginal cost of $60/unit.If Firm #2 enters the market and offers comparable widgets at a 3% discount,extending a price umbrella optimal as long as Firm #1 loses no more than what portion of its market share?

Question 23

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?

A) Clunker market
B) Quality conundrum
C) Car scrapping market
D) Low-quality market
E) Lemons market

Question 24

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) Positioning analysis
B) Sustainability analysis
C) Flexibility analysis
D) Judgment analysis
E) Final Commitment analysis

Question 25

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

A) Regression testing
B) Virtual reality
C) War gaming
D) Commitment testing
E) Scenario testing

Question 26

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?

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

Question 27

Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?

Question 28

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) Real option
B) Commitment option
C) Project option
D) Decision option
E) Future option

Question 29

In a six-firm market,if all firms charge the monopoly price,the profit equals $120,000.In that same six-firm market,if all firms instead charge the prevailing price,the profit is $60,000.If the pricing period is one-month long,what is the maximum monthly discount rate implied for each firm to still have an incentive to independently price at the monopoly level?

Question 30

Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,what is the firm's expected net present value of the investment?