Question 1

________ exists when a firm is unfairly exploited in an exchange.
A) Competitive advantage
B) Business level strategy
C) Opportunism
D) Corporate level strategy

Accepted Answer

Opportunism is the act of taking advantage of another party's weaknesses or circumstances for one's gain. In this case, when a firm is unfairly exploited in an exchange, opportunism is occurring. This can occur when one party takes advantage of another's lack of knowledge or bargaining power.

Question 2

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a
A) competitive advantage.
B) temporary dynamic disadvantage.
C) sustainable competitive advantage.
D) competitive disadvantage.

Accepted Answer

If other firms have competitive advantages in the business activities that a firm is considering to enter through vertical integration, it could put the firm at a competitive disadvantage. This is because the other firms are better positioned to perform those activities and may be able to offer them at a lower cost or with better quality. As a result, the vertically integrated firm may struggle to compete and may not be able to generate the expected benefits from the integration.

Question 3

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyers due to any transaction-specific investments a firm has made.
A) firm capability explanations
B) opportunity-based explanations
C) flexibility-based explanations
D) opportunism-based explanations

Accepted Answer

Opportunism-based explanations suggest that vertical integration is valuable when it reduces threats from suppliers or buyers, especially when a firm has made transaction-specific investments that could be exploited by these parties.

Question 4

A firm with a ________ ratio between value added and sales has brought ________ of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.
A) low; many
B) high; many
C) medium; many
D) medium; few

Accepted Answer

A high ratio between value added and sales indicates that the firm is able to capture a significant portion of the value it creates, which suggests vertical integration. A high degree of vertical integration means that the firm has brought many value-creating activities inside its boundaries (such as production, distribution, and marketing), rather than relying on outside suppliers and contractors.

Question 5

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.
A) Flexibility
B) Dynamic capability
C) Opportunism
D) Uncertainty

Accepted Answer

Flexibility refers to a firm's ability to make changes to its strategic and organizational decisions in response to changing market conditions or other external factors. A high level of flexibility can be advantageous in a dynamic business environment, as it allows the firm to adapt to new challenges and opportunities quickly. However, if a firm's decisions are very costly to alter, it may be less flexible and able to respond effectively to changes in the market. Therefore, flexibility is the best choice that describes how costly it is for a firm to alter its strategic and organizational decisions.

Question 6

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, i.e., which stages of the value chain should be included within a firm's boundaries and why?
A) Ronald Coase
B) Adam Smith
C) David Ricardo
D) Milton Freidman

Accepted Answer

Ronald Coase was awarded the Nobel Prize in Economics in 1991 for his work on transaction costs and the theory of the firm, which included the question of vertical integration. In his paper, "The Nature of the Firm," he explored why firms exist and how they determine the scope of their activities, including which stages of the value chain they should internally produce versus purchase from other firms.

Question 7

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?
A) opportunism-based
B) flexibility-based
C) firm capabilities-based
D) alliance-based

Accepted Answer

Opportunism-based is the oldest explanation and has received the greatest empirical support.

Question 8

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.
A) significantly more flexible
B) somewhat more flexible
C) comparatively flexible
D) less flexible

Accepted Answer

Research suggests that vertically integrating is less flexible than not vertically integrating. This is because vertically integrating involves committing resources to owning and controlling different stages of the production process, which can limit a company's ability to adjust to changes in the market or to take advantage of new opportunities. In contrast, not vertically integrating allows a company to focus on its core competencies and to collaborate with other companies to achieve flexibility and efficiency.

Question 9

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
A) opportunity-specific investment
B) transaction-specific investment
C) competition-specific investment
D) opportunistic investment

Accepted Answer

A transaction-specific investment is an investment that is tailored to a particular transaction or exchange, making it more valuable in that specific context than in alternative exchanges.

Question 10

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of
A) forward vertical integration.
B) backward vertical integration.
C) forward horizontal integration.
D) backward horizontal integration.

Accepted Answer

Forward vertical integration involves a company expanding into a distribution channel, such as opening its own retail stores, to enhance its control over the marketing and distribution of its products. In this case, Apple opened retail stores to sell its own products directly to customers, thus increasing their control over the distribution process.

Question 11

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.
A) uncertain
B) opportunistic
C) flexible
D) dynamic

Accepted Answer

In an uncertain decision-making setting, there is no way to predict the future outcome, which increases the risk associated with investment decisions. Opportunistic, flexible, and dynamic decision-making settings all involve some degree of uncertainty but do not necessarily have the same level of unpredictability as an uncertain setting.

Question 12

If a firm decided to maintain relationships with several different call center management companies, each of which have adopted different technological solutions to the problem of how to use call center employees to assist customers who are using very complex products, to reduce the uncertainty of whether the people staffing the phone can help the firm's customers, this would be consistent with which explanation of vertical integration?
A) opportunism-based
B) flexibility-based
C) firm capabilities-based
D) alliance-based

Accepted Answer

Maintaining relationships with multiple call center management companies allows the firm to remain flexible and adapt to different technological solutions, reducing uncertainty and ensuring customer support effectiveness.

Question 13

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.
A) value added as a percentage of sales
B) simple product diversification
C) competitive advantage
D) competitive dynamic

Accepted Answer

Value added as a percentage of sales is a measure of how much value a firm adds to its products or services through its own resources and activities, and is calculated as (sales revenue - cost of goods sold) / sales revenue. This measure indicates the extent to which a firm relies on internal activities to generate its sales, and can be used to assess the firm's competitiveness and efficiency.

Question 14

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?
A) value added
B) net income
C) sales
D) gross margin

Accepted Answer

The answer of Which of the following is not used...

Question 15

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.
A) flexibility-based explanation
B) opportunism-based explanation
C) firm capability explanation
D) opportunity-based explanation

Accepted Answer

The firm capability explanation argues that a firm should vertically integrate into a business activity if it possesses valuable, rare, and costly-to-imitate resources in that activity, and this aligns with the given statement. The flexibility-based explanation does not consider valuable resources, the opportunism-based explanation is focused on opportunistic behavior rather than resource capabilities, and the opportunity-based explanation does not consider the rarity or costliness of resources.

Question 16

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of
A) forward vertical integration.
B) product differentiation.
C) forward horizontal integration.
D) backward vertical integration.

Accepted Answer

Backward vertical integration occurs when a company expands its role to fulfill tasks formerly completed by businesses up the supply chain, such as a retailer starting to manufacture its own products.

Question 17

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.
A) alliance-based
B) flexibility-based
C) firm capabilities-based
D) opportunism-based

Accepted Answer

A flexibility-based approach to vertical integration suggests that firms should avoid integrating into uncertain business activities and instead form strategic alliances to manage such exchanges, allowing them to remain adaptable to changes.

Question 18

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.
A) 2014
B) 2015
C) 2016
D) 2017

Accepted Answer

The sentence uses the future tense and implies that the event has not yet occurred. Since it is currently 2021, options A, C, and D can be eliminated, leaving option B: 2015.

Question 19

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of
A) product differentiation.
B) diversification.
C) vertical integration.
D) competitive dynamics.

Accepted Answer

Vertical integration refers to the degree to which a firm owns or controls its own supply chain. This includes the steps in the value chain that the firm accomplishes within its own boundaries. Therefore, the number of steps accomplished within its boundaries is a measure of the firm's level of vertical integration.

Question 20

Vertical integration is a type of
A) business strategy.
B) generic strategy.
C) differentiation strategy.
D) corporate strategy.

Accepted Answer

Vertical integration is a corporate strategy where a company owns or controls the entire supply chain from production to distribution. It involves acquiring businesses in different stages of the supply chain to achieve more control, cost savings, and operational efficiencies. Thus, it is a corporate strategy rather than a business or generic strategy, and not necessarily a differentiation strategy.

Quiz 6: Vertical Integration

________ exists when a firm is unfairly exploited in an exchange.

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyers due to any transaction-specific investments a firm has made.

A firm with a ratio between value added and sales has brought of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, i.e., which stages of the value chain should be included within a firm's boundaries and why?

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of

Vertical integration is a type of