Deck 9: Strategic Alliances

Question 1

In a nonequity alliance, firms create a legally independent firm in which they invest and from which they share any profits that are created.

Answer 1

False

Question 2

The use of strategic alliances to manage economic exchanges has grown substantially over the last several years.

Answer 2

True

Question 3

Firms with high levels of absorptive capacity will learn at faster rates than firms with low levels of absorptive capacity, even if these two firms are trying to learn exactly the same things in an alliance.

Answer 3

True

Question 4

In new and uncertain environments it is not unusual for firms to develop numerous strategic alliances.

Question 5

Explicit collusion exists when firms directly communicate with each other to coordinate their levels of production or their prices and is legal in most countries.

Question 6

Tacit collusion exists when firms coordinate their pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.

Question 7

In network industries with increasing returns to scale where standards are unimportant, strategic alliances can be used to create a more favorable competitive environment.

Question 8

In an equity alliance, cooperating firms supplement contracts with equity holdings and alliance partners.

Question 9

In general, due to the intangible nature of knowledge, firms are not able to use alliances to learn from their competitors.

Question 10

A learning race exists in a strategic alliance when both parties seek to learn from each other.

Question 11

Network industries are characterized by decreasing returns to scale.

Question 12

A strategic alliance exists whenever three or more independent organizations cooperate in the development, manufacture, or sale of products or services.

Question 13

Research shows that as many as two-thirds of strategic alliances do not meet the expectations of at least one alliance partner.

Question 14

When a firm cannot realize the cost savings from economies of scale all by itself, it may join in a strategic alliance with other firms so that together both firms will have sufficient volume to be able to gain the cost advantages of economies of scale.

Question 15

When information asymmetry exists between firms that currently own assets and firms that may want to purchase these assets, the selling firm will often have difficulty obtaining the full economic value of these assets.

Question 16

When both parties to an alliance are seeking to learn something from that alliance, a learning race can evolve.

Question 17

Alliances to facilitate entry into new industries are only valuable when the skills needed in these industries are complex and difficult to learn.

Question 18

When potential cooperative partners misrepresent the skills, abilities, and other resources that they will bring to an alliance, this is a form of cheating known as adverse selection.

Question 19

Learning race dynamics are particularly common in relations among large, well-established firms.

Question 20

Research shows that joint ventures between firms in the same industry may have collusive implications and that these kinds of joint ventures are relatively common.

Question 21

Research on international joint ventures suggests that the existence of transaction-specific investments in their relationships makes these agreements relatively immune to holdup problems.

Question 22

When the probability of cheating in a cooperative relationship is lowest, a joint venture is usually the preferred form of cooperation.

Question 23

Transaction cost economics suggests that going it alone is not a substitute for strategic alliances since they are best chosen only when other alternatives are not viable.

Question 24

Capabilities theory suggests that an alliance will be preferred over going it alone when an exchange partner possesses valuable, rare, and costly-to-imitate resources and capabilities.

Question 25

In comparison to strategic alliances, joint ventures increase the threat of cheating by partners.

Question 26

In general, the less tangible the resources and capabilities that are to be brought to a strategic alliance, the less costly it will be to estimate their value before an alliance is created and the more likely it is that adverse selection will occur.

Question 27

Sometimes the value of cheating in a joint venture is sufficiently large that a firm cheats even though doing so hurts the joint venture and forecloses future opportunities.

Question 28

In the short-run, firms can gain some advantages by cheating their alliance partners but research suggests that cheating does not pay in the long run.

Question 29

In general, contracts are sufficient to resolve all the problems associated with cheating in an alliance.

Question 30

The rarity of strategic alliances depends solely on the number of competing firms that have already implemented an alliance.

Question 31

In general, firms will prefer a strategic alliance over "going it alone" when the level of transaction-specific investment required to complete an exchange is moderate.

Question 32

For a strategic alliance to be a source of sustained competitive advantage it must be valuable in that it exploits an opportunity but avoids a threat and it must also be rare and costly to imitate.

Question 33

When there is low uncertainty about the future value of an exchange, an alliance will be preferred to going it alone.

Question 34

Moral hazard occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.

Question 35

The primary purpose of organizing a strategic alliance is to enable partners in the alliance to gain all the benefits associated with cooperation while minimizing the probability that cooperating firms will cheat on their cooperative agreements.

Question 36

An alliance will be preferred to an acquisition when there are legal constraints on acquisitions.

Question 37

Successful strategic alliances are often based on socially complex relations among alliance partners but virtually every firm in a given industry is likely to have the organizational and relationship-building skills required for alliance building making the possibility of direct duplication of strategic alliances very high.

Question 38

The existence of moral hazard in a strategic alliance proves that at least one of the parties is either malicious or dishonest.

Question 39

In an alliance a holdup occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.

Question 40

Although holdup is a form of cheating in strategic alliances, the threat of holdup can also be a motivation for creating an alliance.

Question 41

Strategic alliances can create economic value through helping firms improve their current operations by

A) facilitating the development of technology standards.
B) facilitating tacit collusion.
C) exploiting economies of scale.
D) managing uncertainty.

Question 42

Adverse selection in a strategic alliance is likely only when

A) it is difficult or costly to observe the resources or capabilities that a partner brings to an alliance.
B) a potential partner can easily see the resources and capabilities that a firm is bringing to an alliance.
C) it is difficult or costly to know how competitors will react to the strategic alliance.
D) there are significant transaction-specific assets devoted to the alliance.

Question 43

In one study almost ________ percent of the managers in entrepreneurial firms felt unfairly exploited by their large-firm alliance partners.

A) 80
B) 20
C) 50
D) 10

Question 44

In the computer technology-based industries, over ________ alliances were created between 2001 and 2005.

A) 5,700
B) 1,200
C) 2,200
D) 3,100

Question 45

Consistent with a real options perspective, firms in new and uncertain environments are likely to

A) avoid using strategic alliances.
B) develop numerous strategic alliances.
C) develop few strategic alliances.
D) engage in vertical integration.

Question 46

In general, the ________ tangible the resources and capabilities that are to be brought to a strategy alliance, the ________ costly it will be to estimate their value before an alliance is created, and the ________ likely it is that adverse selection will occur.

A) more; more; more
B) less; more; less
C) less; more; more
D) more; more; less

Question 47

A firm's ability to learn is known as its

A) competitive position.
B) competitive advantage.
C) distinctive competence.
D) absorptive capacity.

Question 48

Strategic alliances are particularly valuable in facilitating market entry and exit when the value of market entry or exit is

A) high.
B) low.
C) moderate.
D) uncertain.

Question 49

Network industries are characterized by

A) increasing diseconomies of scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) decreasing economies of scale.

Question 50

A ________ is a form of nonequity alliance that exists when one firm allows another to use its brand name to sell its products.

A) supply agreement
B) distribution agreement
C) licensing agreement
D) joint venture

Question 51

Research shows that as many as ________ of all strategic alliances do not meet the expectations of at least one alliance partner.

A) one-third
B) five-eighths
C) one-half
D) two-thirds

Question 52

In a ________, cooperating firms create a legally independent firm in which they invest and from which they share any profits that are created.

A) licensing agreement
B) supply agreement
C) distribution agreement
D) joint venture

Question 53

A(n) ________ exists whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services.

A) vertical market
B) strategic alliance
C) initial public offering
D) market transaction

Question 54

________ occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.

A) Moral hazard
B) Adverse selection
C) Holdup
D) Explicit collusion

Question 55

Although joint ventures between firms in the same industry ________ collusive implications, research has shown that these kinds of joint ventures are ________.

A) may have; relatively rare
B) are not likely to have; relatively rare
C) may have; relatively common
D) are not likely to have; relatively common

Question 56

When both parties to an alliance are seeking to learn something from that alliance, a ________ can evolve.

A) learning race
B) dynamic race
C) learning dynamic
D) learning curve

Question 57

If TeleCo were to enter into a strategic alliance with a partner that promised it could deliver a high quality wireless infrastructure when in fact the potential partner had neither the skills nor abilities to provide this infrastructure, TeleCo could be said to be impacted by

A) moral hazard.
B) adverse selection.
C) holdup.
D) tacit collusion.

Question 58

________ exist(s) when firms directly communicate with each other to coordinate their levels of production and/or their prices.

A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion

Question 59

________ exist(s) when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.

A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion

Question 60

As long as the cost of ________ to enter a new industry is less than the cost of ________, an alliance can be a valuable strategic opportunity.

A) vertically integrating; learning new skills and capabilities
B) learning new skills and capabilities; using an alliance
C) using an alliance; learning new skills and capabilities
D) learning new skills and capabilities; vertically integrating

Question 61

________ may enable partners to explore exchange opportunities that they could not explore if only legal and economic organizing mechanisms were in place.

A) Trust
B) Joint ventures
C) Reputational effects
D) Equity investments

Question 62

To the extent that a strategic alliance is based on ________ relations, it will make the alliances costly to imitate.

A) socially complex
B) tacit collusion
C) explicit collusion
D) moral hazard

Question 63

Alliances will be preferred to acquisitions when

A) alliances limit a firm's flexibility under conditions of high uncertainty.
B) there is minimal unwanted organizational "baggage" in an acquired firm.
C) there are legal constraints on acquisitions.
D) the value of a firm's resources and capabilities does not depend on its independence.

Question 64

All of the following are methods firms can use to reduce the threat of cheating in strategic alliances except

A) contracts.
B) equity investments.
C) joint ventures.
D) tacit collusion.

Question 65

eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp.
eBay's agreement with the U.S. Postal Service is most accurately classified as a(n)

A) joint venture.
B) equity agreement.
C) licensing agreement.
D) nonequity agreement.

Question 66

eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp.
eBay's agreement with MBNA is most accurately characterized as a(n)

A) supply agreement.
B) licensing agreement.
C) equity alliance.
D) joint venture.

Question 67

When the probability of cheating in a cooperative relationship is greatest, a(n) ________ is the preferred form of cooperation.

A) equity agreement
B) licensing agreement
C) joint venture
D) distribution agreement

Question 68

The rarity of strategic alliances

A) depends solely on the number of competing firms that have already implemented an alliance.
B) depends solely on whether or not the benefits that firms obtain from their alliances are not common across firms in the industry.
C) depends not only on the number of competing firms that have already implemented an alliance but also on whether or not the benefits that firms obtain from their alliances are common across competing firms in the industry.
D) depends solely on the number of substitutes available for alliances.

Question 69

Often both parties in a failed alliance accuse each other of

A) adverse selection.
B) tacit collusion.
C) moral hazard.
D) holdup.

Question 70

________ theory suggests that under conditions of high uncertainty, firms may be unwilling to commit to a particular course of action by engaging in an exchange with a firm and will choose, instead, the strategic flexibility associated with alliances.

A) Capabilities
B) Real options
C) Transaction cost economics
D) Resource-based

Question 71

While it is often the case that there will be important information asymmetries between firms in an alliance, these asymmetries are likely to be ________ when alliances partners come from different countries.

A) much less
B) about the same as
C) much greater
D) marginally greater

Question 72

Alliances will be preferred to going it alone when

A) the level of transaction-specific investments required to complete an exchange is low.
B) there are no transaction-specific investments required to complete an exchange is low.
C) when there is low uncertainty about the future value of an exchange.
D) the level of transaction-specific investments required to complete an exchange is moderate.

Question 73

When one firm makes more transaction-specific investments in a strategic alliance than partner firms make, that firm may be subject to a form of cheating called ________ that occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.

A) adverse selection
B) holdup
C) moral hazard
D) noncompliance

Question 74

Firms ________ when they attempt to develop all the resources and capabilities they need to exploit market opportunities and neutralize market threats by themselves.

A) engage in tacit collusion
B) form joint ventures
C) go it alone
D) engage in explicit collusion

Question 75

Research suggests that ________ are the type of alliance where existence of transaction-specific investments often leads to holdup problems.

A) licensing agreements
B) equity alliances
C) joint ventures
D) distribution agreements

Question 76

Two possible substitutes for strategic alliances include

A) going it alone and tacit collision.
B) going it alone and acquisitions.
C) acquisitions and explicit collusion.
D) explicit collusion and tacit collusion.

Question 77

Research indicates that the most common reason that alliances fail to meet the expectations of partner firms is

A) the lack of financial resources.
B) the necessity of transaction-specific investments.
C) the lack of transaction-specific investments.
D) the partners' inability to trust one another.

Question 78

One of the reasons why the benefits that accrue from a particular strategic alliance may be rare is that

A) relatively few firms may have the complementary resources and abilities needed to form an alliance.
B) there is a relatively large number of alliance partners available.
C) relatively many firms may have the complementary resources and abilities needed to form an alliance.
D) there may be a relatively low amount of transaction-specific assets to enter into similar alliances.

Question 79

Which of the following is a limitation of the reputational control of cheating in a strategic alliance?

A) Subtle cheating in an alliance is likely to become public knowledge.
B) Even if one firm is clearly cheating in an alliance, the other firm may not be sufficiently tied into a network of firms to make this information public.
C) The effect of a tarnished reputation forecloses future opportunities for a firm and it helps reduce the current losses of the firm that was cheated.
D) The reputation of the firm that was impacted by the cheating may be impacted as significantly as the firm that committed the cheating.

Question 80

An example of a contractual clause that deals with operating issues would be a

A) noncompete clause.
B) minority protection clause.
C) put options clause.
D) termination clause.