Question 1

To transfer or acquire resources a firm will face transaction costs including patent costs, negotiation costs and contract enforcement cost

Accepted Answer

Transaction costs are the costs associated with transferring or acquiring resources, and can include patent costs (costs associated with obtaining and protecting patents), negotiation costs (costs associated with reaching an agreement with another party), and contract enforcement costs (costs associated with enforcing the terms of a contract).

Question 2

Isolating mechanisms are barriers limiting the equalization of rents among firms, i.e. phenomena that erode a firm's competitive advantages

Accepted Answer

Isolating mechanisms are barriers that protect a firm's competitive advantages from being eroded by competitors, not phenomena that erode them.

Question 3

A first mover advantage is the attribute of the first firm entering an industry but only relates to its ability to attract the best human resources

Accepted Answer

A first mover advantage is the advantage that a company gains by being the first to enter a new market or introduce a new product or service. This advantage can include factors such as brand recognition, customer loyalty, economies of scale, and establishing market share. It is not limited to attracting the best human resources.

Question 4

Competitive advantage emerges from three sources: external, hybrid, and internal sources

Accepted Answer

Competitive advantage typically emerges from internal and external sources, but "hybrid" is not commonly recognized as a distinct source.

Question 5

A "Blue ocean strategy" refers to the creation of entirely new industries, or the recreation of existing industries

Accepted Answer

A "Blue ocean strategy" focuses on creating new demand in uncontested market spaces instead of competing in existing market spaces. This can result in the creation of entirely new industries or the reinvention of existing industries.

Question 6

For a firm to imitate the strategy of another firm, and replicate its competitive advantage, it must do four things: identify the target firm, incentivize the rival, diagnose the sources of competitive advantage, and acquire the resources needed

Accepted Answer

To replicate a firm's competitive advantage, a firm must identify the target firm, diagnose the sources of competitive advantage, and acquire the necessary resources, but incentivizing the rival is not a required step.

Question 7

Is it easy for Sears Holdings (Kmart) to understand Wal-Mart's competitive advantages?

Accepted Answer

Understanding Wal-Mart's competitive advantages requires more than just visiting a store. It requires analyzing their business practices, supply chain management, pricing strategies, and customer engagement tactics. It would take significant research and analysis for Sears Holdings to fully understand Wal-Mart's competitive advantages.

Question 8

A firm can create competitive advantage by responding better than rivals to changes in its environment or by maintaining strategic differences from its rivals that customers accept

Accepted Answer

This is a widely recognized concept in strategic management known as the "Resource-Based View" of the firm. By leveraging their unique resources, capabilities, and competencies, firms can gain a sustainable competitive advantage over their rivals. This can be achieved by being more responsive to environmental changes or by creating a strategic position that is difficult for rivals to replicate.

Question 9

To "preempt" an entrant, a firm can occupy existing and potential strategic niches to reduce the range of opportunities open to potential entrants

Accepted Answer

Preemptive strategies involve taking actions to limit the opportunities available to potential entrants, and one way to do this is by occupying strategic niches in the market. By doing so, a firm can make it difficult or unprofitable for new entrants to compete effectively.

Question 10

The theory of limit pricing postulates that a firm in a strong market position sets prices that create profits which just fail to attract entrants

Accepted Answer

This is the basic idea behind limit pricing theory. A firm with a dominant market position may set prices just high enough to make it unprofitable for potential new entrants to compete with them, allowing them to maintain their market share and earn above-normal profits.

Question 11

Porter says that cost leadership and differentiation are the two main sources of competitive advantages

Accepted Answer

According to Michael Porter's Generic Strategies framework, cost leadership and differentiation are the two main sources of competitive advantages.

Question 12

For some firms, speed of new product development appears to be the only real source of competitive advantage in today's economy

Accepted Answer

In today's fast-paced and ever-changing economy, firms that can develop and launch new products quickly have an advantage over their competitors. They can better respond to changing customer needs and market trends, and can capture market share before others can. Therefore, speed of new product development can be a key source of competitive advantage for some firms.

Question 13

Competitive advantage is a relatively simple construct to understand and achieve

Accepted Answer

Achieving and maintaining a competitive advantage requires a complex and continuous process of identifying and leveraging unique resources, capabilities, and market positioning in order to outperform competitors. It involves strategic decision-making, innovation, and ongoing analysis and adaptation to changing market conditions.

Question 14

For competitive advantage to exist, a firm must operate in a market of "pure and perfect competition", as described by economists

Accepted Answer

Competitive advantage can still be achieved in markets that are not purely or perfectly competitive. In fact, firms often strive to differentiate themselves in order to gain a competitive advantage in markets with imperfect competition.

Question 15

Regarding causal ambiguity and uncertain imitability :

Accepted Answer

Causal ambiguity refers to a situation where it is difficult to determine the cause-and-effect relationship between two variables. Uncertain imitability refers to a situation where it is difficult to imitate a particular resource or capability of a firm because the exact cause-and-effect relationship is not clear. Therefore, both phrases describe a state of confusion that can make it difficult for firms to imitate the success of others. Additionally, attempting to imitate something without fully understanding it can lead to problems, reinforcing the importance of these concepts in strategic management.

Question 16

A firm that decides as a long term goal to target only part of the overall market has adopted a focus strategy

Accepted Answer

A focus strategy involves targeting a specific segment or niche within the overall market, rather than attempting to appeal to the entire market. This can be a viable long term goal for a firm.

Question 17

"Causal ambiguity" is the failure to clearly understand the source of a rival's competitive advantages - in particular which of the rival's distinctive features are causes and which are effects of another feature

Accepted Answer

Causal ambiguity is indeed the failure to clearly understand the source of a rival's competitive advantages and distinguishing which features are causes and which are effects of those advantages.

Question 18

Entrepreneurship can be defined as the ability to identify and respond to opportunities in the environment

Accepted Answer

This is the commonly accepted definition of entrepreneurship. It involves recognizing a need in the market and developing a solution or business to meet that need.

Question 19

Three different market types lead to different categories of competitive advantage. These three markets are: trading markets, service markets, and production markets

Accepted Answer

The three different market types that lead to different categories of competitive advantage are factor markets, product markets, and capital markets.

Question 20

Innovation can be narrowly interpreted as technical change, but also more broadly as a sense of novelty in any area of the firm

Accepted Answer

Innovation can refer to technical changes, such as new products or processes, but it can also encompass new ideas or approaches to management, marketing, or other aspects of the firm. Therefore, the statement is true.

Quiz 8: The Nature and Sources of Competitive Advantage