Question 1

Which of the following statements about rivalry in the context of established companies is true?

Accepted Answer

Rivalry in the context of established companies typically leads to intense price competition, which can squeeze profits out of an industry. This is because companies may lower prices to gain a competitive advantage over one another, leading to lower margins for all players in the industry.

Question 2

The level of industry demand:

Accepted Answer

The level of industry demand is one of the determinants of the intensity of rivalry in the industry. When industry demand is high, there is usually high competition among firms to capture market share. Conversely, when industry demand is low, there is less competition among firms. A decrease in industry demand may lead to a decrease in overall profits, which can intensify rivalry among firms as they compete for a smaller pool of customers.

Question 3

The extent of rivalry among established companies is lowest when:

Accepted Answer

When demand is growing rapidly, companies are less focused on competing for market share since the market itself is expanding, reducing the intensity of rivalry among established companies.

Question 4

Brand loyalty can be created by:

Accepted Answer

Emphasizing high-quality products helps to build trust with customers and can result in brand loyalty. Customers are more likely to continue purchasing from a brand that consistently delivers high-quality products. Minimal advertising, not using patents to protect products, cutting costs for research and development, and minimizing after-sales service are unlikely to create brand loyalty, and may even have the opposite effect.

Question 5

Which of the following statements about complementors is true?

Accepted Answer

Complementors are firms that provide complementary products to the industry. They have the power to impact the sales of the industry to which they supply complement products. This statement is true, making option C the correct choice. The other options are false.

Question 6

Which of the following is a difference between the bargaining power of buyers and the bargaining power of suppliers?

Accepted Answer

The answer of Which of the following is a difference...

Question 7

Mobility barriers:

Accepted Answer

Mobility barriers refer to factors that inhibit the movement of companies between strategic groups in an industry. These barriers could be related to technology, brand identity, distribution channels, or other factors that create a competitive advantage for companies within their strategic group. By inhibiting the movement of companies between strategic groups, mobility barriers make it harder for companies to escape competition within their current group and limit their options for growth and profitability.

Question 8

Which of the following is NOT an implication that strategic groups must address when considering threats and opportunities?

Accepted Answer

The answer of Which of the following is NOT an...

Question 9

The bargaining power of an industry's suppliers is greater when:

Accepted Answer

The bargaining power of an industry's suppliers is greater when the industry is not an important customer to the suppliers. This is because the suppliers have less dependency on a particular industry, giving them more leverage in negotiations.

Question 10

Suppliers in an industry are most powerful when:

Accepted Answer

Suppliers are most powerful when there are few substitutes for their products, as this limits the options available to companies in the industry, giving suppliers more leverage.

Question 11

Which of the following is NOT considered a benefit of industry analysis?

Accepted Answer

This statement is incorrect as industry analysis recognizes how competitive forces interact and impact each other.

Question 12

The Smith boys want to get the new Xbox console for Christmas, but their parents are hesitant to buy it because the family already owns the two latest versions of the PlayStation consoles with multiple games and extra controllers. Their decision to remain with the PlayStation is due to which of the following?

Accepted Answer

Switching costs are relevant here because the family has already invested in the PlayStation ecosystem, including games and accessories, making the switch to a new console system potentially costly and inconvenient.

Question 13

When shopping for clothing such as shirts and jeans, Tyrone only buys products from Eastern Clothing Company even if there are several other companies that offer similar products at lower prices. Tyrone's preference for Eastern Clothing Company demonstrates:

Accepted Answer

Tyrone's consistent choice of Eastern Clothing Company despite the availability of other brands at lower prices suggests that he has developed a preference for the brand. This implies brand loyalty, which is the tendency for consumers to consistently choose the same brand over other options due to emotional attachment, trust, and other factors.

Question 14

Which of the following costs arise when a customer invests time, energy, and money shifting from the products offered by one established company to the products offered by a new entrant?

Accepted Answer

The costs described in the question are known as switching costs, which refer to the expenses incurred by a customer when they switch from one product or service provider to another. This can include time, effort, and money spent on learning about the new product or service, discontinuing the use of the old product or service, and adapting to the new product.

Question 15

Which of the following statements about government regulations in the context of entry barriers of an industry is true?

Accepted Answer

Falling entry barriers due to government deregulation results in higher competition and lower industry profit rates. When government regulates an industry, it creates entry barriers that limit the number of firms that can compete. These barriers include licensing requirements, safety standards, and environmental regulations. When the government deregulates an industry, these barriers fall, making it easier for new firms to enter the market. This increased competition leads to lower industry profit rates.

Question 16

What makes up the competitive structure of an industry?

Accepted Answer

The competitive structure of an industry is determined by the number and size distribution of companies operating within it. This includes the degree of concentration, the number of firms in the industry, and the relative size of each firm. Other factors such as market segments, consumers, manufacturing plants, and quality of products produced may also influence the competitive structure, but they are not the primary determinants.

Question 17

An industry's buyers have high bargaining power when:

Accepted Answer

When buyers have low switching costs, they can easily switch to another supplier if the current supplier increases its prices or provides poor quality products or services. This gives buyers more bargaining power to negotiate better prices or terms with their current or potential suppliers.

Question 18

Common exit barriers include all the following EXCEPT:

Accepted Answer

Economic independence is actually a facilitator of exit rather than a barrier. It allows a company to leave an industry without suffering significant losses or damage. Therefore, all other options (A, B, C, and D) are common exit barriers, while E is not.

Question 19

Which of the following is NOT a determinant of the extent of rivalry among established companies?

Accepted Answer

The bargaining power of buyers is a determinant of rivalry among established companies as it affects the competition for customers and the ability for companies to raise prices. All the other options listed are determinants of rivalry among established companies.

Question 20

Economies of scale can arise from:

Accepted Answer

Economies of scale refer to the cost advantage gained by increasing production volume. This is often achieved by spreading fixed production costs (such as factory rent, equipment depreciation, and administrative salaries) over a larger number of units produced. As a result, the average cost per unit decreases, making it more cost-efficient to produce at higher volumes. Therefore, option C is the correct answer.

Quiz 2: External Analysis: the Identification of Opportunities and Threats