Deck 11: Strategic Alliances

Question 1

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

Answer 1

False

Question 2

________ 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

Answer 2

D

Question 3

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

Answer 3

A

Question 4

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 5

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

Question 6

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 7

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 8

eBay's agreement with the Korean online auction company is best characterized as a(n)

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

Question 9

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 10

eBay's former agreement with ecorp is best characterized as a(n)

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

Question 11

Define a strategic alliance and identify and differentiate between three broad categories of strategic alliances.

Question 12

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

Question 13

A firm's ability to learn is known as its

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

Question 14

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

Question 15

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 16

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 17

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 18

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 19

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 20

________ 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 21

If eBay entered into the cooperative agreement with its Australian partner for the purpose of testing the attractiveness of the Australian and New Zealand auction industries prior to making a more significant investment in these industries,this would be an example of

A)transaction cost economics.
B)tacit collusion.
C)explicit collusion.
D)real options.

Question 22

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 23

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 24

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

Question 25

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 26

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

Question 27

Network industries are characterized by decreasing returns to scale.

Question 28

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 29

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

Question 30

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 31

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 32

If eBay's agreements with their Korean and Australian partners were intended to increase the number of buyers and sellers and thereby increase the value of eBay's online auction services for every eBay user,this would imply that the online auction industry is an example of a ________ industry.

A)declining
B)network
C)commodity
D)mature

Question 33

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

Question 34

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 35

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 36

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

Question 37

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 38

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.

Question 39

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

Question 40

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 41

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 42

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 43

Discuss the concept of a learning race and identify three reasons why firms in an alliance may differ in the rate they learn from each other.

Question 44

Often both parties in a failed alliance accuse each other of

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

Question 45

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 46

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

Question 47

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 48

If eBay's Australian partner agreed to provide marketing and technological skills to help eBay compete in the Australian and New Zealand auction industries but provided skills that were significantly lower than promised,this would be an example of

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

Question 49

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 50

eBay's agreement with ________ is the most likely to be susceptible to holdup.

A)the Australian partner
B)the Korean partner
C)MBNA
D)the U.S.Postal Service

Question 51

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 52

If,prior to entering the cooperative agreement with eBay,eBay's Korean partner stated that it had the technological capabilities to facilitate eBay's Korean auction business when,in fact,the Korean company did not have these capabilities,this would be an example of

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

Question 53

What is the connection between strategic alliances and real options?

Question 54

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 55

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 56

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 57

________ 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 58

Identify and discuss the three ways alliances can create economic value by helping firms improve the performance of their current operations.

Question 59

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

Question 60

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 61

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 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

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

Question 64

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 65

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

Question 66

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 67

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 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

________ 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 70

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 71

Define the three fundamental forms of cheating in strategic alliances and discuss the short- and long-term implications of cheating in a strategic alliance.

Question 72

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 73

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 74

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 75

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 76

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 77

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

Question 78

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 79

Which of the following reasons helps explain why eBay may have preferred to enter into an alliance to enter the Korean online auction industry rather than going it alone?

A)eBay's Korean partner possesses capabilities that are valuable and rare but not costly to imitate.
B)The level of transaction-specific investments required to enter the Korean online auction industry is low.
C)There is little uncertainty about the future of the Korean online auction industry.
D)The level of transaction-specific investments required to enter the Korean online auction industry is moderate.

Question 80

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.