Question 1

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?
A) if the company is able to put up a credible threat of retaliation
B) if the capital requirements in the industry are high
C) if the customer switching costs in the industry are high
D) if the industry has recently become deregulated

Accepted Answer

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

Question 2

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
A) entering the aircraft manufacturing industry requires huge capital investments.
B) there is expected to be a huge return on investment within this industry.
C) there is no credible threat of retaliation from the incumbents.
D) entering the aircraft manufacturing industry means violating government policies.

Accepted Answer

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

Question 3

Which of the following is a characteristic of a fragmented industry?
A) The entry barriers are high.
B) There are many small firms.
C) Firms tend to have high profitability.
D) Firms have substantial pricing power.

Accepted Answer

A fragmented industry consists of many small firms and tends to generate low profitability.

Question 4

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?
A) Threat of new entrants will be low.
B) Bargaining power of suppliers will be high.
C) Availability of complements will be low.
D) Threat of substitute products and services will be high.

Accepted Answer

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

Question 5

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?
A) the emergence of entry barriers
B) the bargaining power of suppliers
C) the availability of complements
D) the threat of substitutes

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 6

Which of the following is an example of monopolistic competition?
A) iron ore industry
B) computer hardware industry
C) express delivery industry
D) beverages industry

Accepted Answer

The computer hardware industry provides one example of monopolistic competition. Many firms compete in this industry, and even the largest of them (like Acer, Apple, Dell, HP, or Lenovo) have less than 20 percent market share.

Question 7

Buyers are highly price sensitive when
A) their purchase represents a small fraction of their procurement budget.
B) they earn low profits or are strapped for cash.
C) the quality of their products and services are highly affected by the quality of the inputs.
D) the industry's products are highly characterized with non-price competition.

Accepted Answer

Companies need to be aware of situations when buyers are especially price sensitive. This is the case when buyers earn low profits or are strapped for cash.

Question 8

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)in 2008?
A) A strong threat of substitutes decreases the rivalry among existing competitors.
B) All the five forces must work together to have a meaningful impact.
C) Any of the five forces on its own, if sufficiently strong, can extract industry profitability.
D) Competition must be defined more narrowly to remain confined to the industry's closest competitors.

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 9

Which of the following is a feature of a monopolistically competitive industry?
A) differentiated products
B) high entry barriers
C) no pricing power
D) a single firm

Accepted Answer

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 10

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?
A) monopoly
B) oligopoly
C) perfect competition
D) monopolistic competition

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 11

Clear Calls Inc.,a telephone service provider,has a large user base mainly because phone calls and messages between all Clear Calls users are free.When a person switches to a Clear Calls network,his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages.In addition,an existing user who gets a new user to register with Clear Calls Inc.is given a free wireless connection.This has helped to keep competition away from Clear Calls.In this scenario,which of the following factors is acting as an entry barrier for Clear Calls Inc.?
A) economies of scale
B) high capital requirement
C) network effects
D) high fixed costs

Accepted Answer

In this scenario, network effects are acting as an entry barrier for Clear Calls Inc. Network effects describe the positive effect (externality) that one user of a product or service has on the value of that product or service for other users. When network effects are present, the value of the product or service increases with the number of users.

Question 12

In which of the following industry competitive structures do selling firms have the lowest pricing power?
A) monopolistic competition
B) monopoly
C) oligopoly
D) perfect competition

Accepted Answer

A firm competing in perfectly competitive industry has little or no ability to raise its prices. This is because the commodity product offerings are more or less identical.

Question 13

First Ledger Inc.,an auditing company,replaced its existing accounting software with new accounting software from another supplier.Since the new software has different features and abilities,First Ledger Inc.has had to spend $10,000 on training its employees to use it.In this scenario,$10,000 represents First Ledger Inc.'s
A) opportunity cost.
B) switching cost.
C) octroi charge.
D) excise duty.

Accepted Answer

In this scenario, $10,000 represents First Ledger Inc.'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 14

The relative bargaining power of suppliers is high when
A) suppliers provide products that are differentiated.
B) incumbent firms face low supplier switching costs.
C) incumbent firms can credibly threaten to backward integrate into the industry.
D) suppliers depend heavily on the industry for a large portion of their revenues.

Accepted Answer

The relative bargaining power of suppliers is high when suppliers offer products that are differentiated and when suppliers do not depend heavily on the industry for a large portion of their revenues.

Question 15

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
A) forward integration.
B) product differentiation.
C) crowdsourcing.
D) backward integration.

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 16

Given the industry structure in the automobile business,entering the auto manufacturing industry doesn't seem advisable.Yet Tesla Motors is joining the fray.Rather than attempting to compete head-on in internal combustion engines,Tesla Motors is entering the all-electric car segment,a much less crowded niche in the overall car industry.Which of the following is Tesla most hoping to benefit from in this market niche?
A) network effects
B) economies of scale
C) customer switching costs
D) capital requirements

Accepted Answer

Tesla is hoping to benefit from economies of scale in this market niche. Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Question 17

Which of the following features about a buyer indicates that the buyer has high bargaining power?
A) when the buyer cannot credibly threaten to backwardly integrate into the industry
B) when the buyer cannot purchase specific products from other sellers
C) when the buyer faces high switching costs
D) when the buyer operates in an industry where products are undifferentiated

Accepted Answer

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

Question 18

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
A) easily achieve a temporary competitive advantage.
B) easily achieve a sustainable competitive advantage.
C) only achieve competitive parity.
D) maintain its absolute advantage for long time.

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 19

Which of the following would most likely not indicate that sellers are a strong competitive force in an industry?
A) when the buyers' cost of switching to substitutes is low
B) when the products and services they provide can be differentiated
C) when the buyers of their products are customers who buy in small quantities
D) when the components they supply affect buyers' product quality

Accepted Answer

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 20

In an industry,the threat of entry is high when
A) capital requirements are low.
B) expected returns are high.
C) technological know-how is industry specific.
D) switching costs are high.

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.

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

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

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

Which of the following is a characteristic of a fragmented industry?

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

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?

Which of the following is an example of monopolistic competition?

Buyers are highly price sensitive when

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE) in 2008?

Which of the following is a feature of a monopolistically competitive industry?

In which of the following industry competitive structures do selling firms have the lowest pricing power?

The relative bargaining power of suppliers is high when

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

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

Which of the following would most likely not indicate that sellers are a strong competitive force in an industry?

In an industry,the threat of entry is high when