Question 1

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because

Accepted Answer

There is not a significant threat of entry because entering the aircraft manufacturing industry requires huge capital investments.

Question 2

Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely

Accepted Answer

Since the company operates in an industry where many other suppliers sell standardized products, it can most likely only achieve competitive parity. Firms in perfect competition have difficulty achieving even a temporary competitive advantage and can achieve only competitive parity.

Question 3

Magical Productions is a large production company that controls a major portion of the television industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Magical Productions is most likely functioning in a(n) ________ industry.

Accepted Answer

In this scenario, Magical Productions is most likely functioning in an oligopolistic industry. An oligopolistic industry is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power.

Question 4

Which of the following features about a buyer indicates that the buyer has high bargaining power?

Accepted Answer

The power of buyers is high when the industry's products are standardized or undifferentiated commodities.

Question 5

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate?

Accepted Answer

The iron ore industry best illustrates a perfect competition. A perfectly competitive industry is characterized as fragmented and has many small firms, a commodity product, ease of entry, and little or no ability for each individual firm to raise its prices.

Question 6

Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate?

Accepted Answer

This scenario best illustrates a monopolistically competitive structure. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

Question 7

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through

Accepted Answer

In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through backward integration. Buyers are powerful when they can credibly threaten backward integration. Backward integration occurs when a buyer moves upstream in the industry value chain, into the seller's business.

Question 8

Which of the following factors most contributes to the U.S. automotive industry being characterized by high entry barriers?

Accepted Answer

Even with relatively recent competitors like Tesla in the marketplace, the U.S. automotive industry is characterized by high entry barriers. Car manufacturers require large-scale production in order to be cost-competitive.

Question 9

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)?

Accepted Answer

The AVE example highlights the two fundamental insights provided by Porter's five forces framework. First, competition must be defined more broadly to go beyond direct industry competitors. Second, any of the five forces on its own, if sufficiently strong, can extract industry profitability.

Question 10

Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate?

Accepted Answer

This best illustrates a monopoly. An industry is a monopoly when there is only one (large) firm supplying the market.

Question 11

While Tender Chicken Inc. operates in a monopolistically competitive industry, Future Wireless Inc. operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true?

Accepted Answer

The threat of new entrants is higher for Tender Chicken than for Future Wireless. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers. An industry is a monopoly when there is only one (large) firm supplying the market.

Question 12

In an industry, the threat of entry is high when

Accepted Answer

The threat of entry is high when capital requirements are low in comparison to the expected returns. If an industry is attractive enough, efficient capital markets are likely to provide the necessary funding to enter an industry. Capital, unlike proprietary technology and industry-specific know-how, is a resource that can be relatively easily acquired in the face of attractive returns.

Question 13

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?

Accepted Answer

The threat of entry is low when incumbents possess cumulative learning and experience effects.

Question 14

National Safety Inc., an insurance firm, replaced its existing project management software with new software from another supplier. Since the new software has different features and abilities, National Safety has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents National Safety's

Accepted Answer

In this scenario, $10,000 represents National Safety's switching cost. Switching costs are incurred by moving from one supplier to another. Changing vendors may require the buyer to alter product specifications, retrain employees, and/or modify existing processes.

Question 15

When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger?

Accepted Answer

When fashion magazines face competition from fashion blogs on the web, the threat of substitutes gets stronger. The threat of substitutes is the idea that products or services available from outside the given industry will come close to meeting the needs of current customers. The threat of substitutes is high when the substitute offers an attractive price-performance trade-off or when the buyer's cost of switching to the substitute is low.

Question 16

Lu runs a company that manufactures satellites for commercial and government use. It has few rivals. At the moment, the power of buyers, the power of suppliers, and the threat of substitutes are all low. Based on this information, what can Lu conclude?

Accepted Answer

The stronger the forces (threat of entry, power of buyers and suppliers, and threat of substitutes) are, the stronger the expected competitive intensity, which in turn limits the industry's profit potential. Therefore, the weaker these forces are, the more profitable a firm in this industry is likely to be.

Question 17

Three large firms dominate the telecommunication industry of United Canava: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in?

Accepted Answer

These companies are most likely in an oligopolistic industry, which is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. In oligopoly, non-price competition is the preferred mode of competition.

Question 18

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate?

Accepted Answer

This scenario best illustrates an oligopoly. The term oligopoly comes from the Greeks and means "few sellers." An oligopolistic industry is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others.

Question 19

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?

Accepted Answer

A company will most likely face the highest threat of entry if the telecommunications industry has recently become deregulated.

Question 20

Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly?

Accepted Answer

A monopolistically competitive industry has many firms competing against each other, and an oligopolistic industry is consolidated with few (large) firms.

Quiz 3: External Analysis: Industry Structure, Competitive Forces, and Strategic Groups