Question 1

Product innovation is an effort to refine and improve a firm's current processes.

Accepted Answer

Product innovation involves the development and introduction of new or improved products, services, or processes that meet the needs of customers and create value for the firm. It is not just about refining or improving current processes, but rather, exploring new ideas and creating something entirely new.

Question 2

In general, it is rarely the case that all five forces in the five forces framework will be equally threatening at the same time.

Accepted Answer

It is rare for all five forces to be equally threatening at the same time. Each industry and specific company will have their own unique combination of forces and their level of threat will vary.

Question 3

If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open his own diamond brokerage firm, this would be an example of forward vertical integration.

Accepted Answer

Forward vertical integration occurs when a company moves closer to the end consumer in the supply chain, such as a manufacturer opening retail stores. Opening a diamond brokerage firm would be backward vertical integration, as it involves moving closer to the raw material source.

Question 4

An emerging industry is an industry in which a large number of small or medium-sized firms operate and no small set of firms has a dominant market share or creates dominant technologies.

Accepted Answer

The answer of An emerging industry is an industry in...

Question 5

First movers that invest only in technology usually obtain sustained competitive advantages, even if they do not tie up strategically valuable resources in an industry before their full value is widely understood.

Accepted Answer

First movers that invest only in technology may not obtain sustained competitive advantages if they do not secure strategically valuable resources, as competitors can quickly imitate technology and erode any initial advantage.

Question 6

In an industry, the products or services provided by a firm's competition meet approximately the same customer needs in the same way as the products or services provided by the firm itself, whereas substitutes meet approximately the same customer needs but do so in different ways.

Accepted Answer

This is the definition of substitutes in the context of competition.

Question 7

The major opportunity facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industry into a smaller number of firms.

Accepted Answer

By implementing strategies that consolidate the industry, firms in fragmented industries can increase their market share and potentially improve their profitability by reducing competition. This often involves acquiring or merging with other firms in the industry to create a larger, more dominant entity.

Question 8

Mature industries are characterized by elements such as increasing growth in total industry demand, significant increases in product capacity, and an overall increase in the profitability of firms in the industry.

Accepted Answer

Mature industries are actually characterized by slower growth in demand, limited capacity expansion, and more intense competition, leading to decreased profitability for firms in the industry.

Question 9

According to Bradenburger and Nalebluff, a firm's competitors help increase the size of a firm's markets while complementors divide this market among a set of firms.

Accepted Answer

According to Bradenburger and Nalebluff, complementors help increase the size of a firm's markets by providing complementary products or services that enhance the value of the original product or service. Competitors, on the other hand, offer similar products or services and therefore actually reduce the size of the market available to a single firm.

Question 10

Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes.

Accepted Answer

When suppliers are threatened by substitutes, their bargaining power decreases, making them less of a threat to firms in the industry.

Question 11

Sophisticated software can enhance the value that customers receive from a personal computer. Therefore, software can be said to be a complementor of a personal computer.

Accepted Answer

Complementors are products or services that add value to a customer when used together with another product or service. In this case, software enhances the usefulness and value of a personal computer, making it a complementor.

Question 12

The threat of buyers is greater if the products or services that are being sold to buyers are standard and not differentiated than if the products sold to buyers are highly differentiated.

Accepted Answer

If the products or services being sold to buyers are standard and not differentiated, then buyers have a greater bargaining power because they can easily switch to another seller who offers the same product or service. However, if the products are highly differentiated, buyers have less bargaining power as they cannot easily find a perfect substitute.

Question 13

It is possible for a single firm to be a complementor of one firm and a competitor of another.

Accepted Answer

A firm's role as a complementor or competitor depends on its relationship with other firms in the market. It is possible for a firm to have a complementary relationship with one firm, where their products or services enhance each other's value, while simultaneously competing with another firm in a different area. For example, a company that manufactures phone cases may be a complementor to a smartphone company by providing accessories that enhance the user experience, but at the same time may be a competitor to other phone case manufacturers vying for the same customer base.

Question 14

The objective of divestment is to extract a firm from a declining industry.

Accepted Answer

Divestment is a strategy used by firms to exit from a declining industry and focus on core businesses or invest in new and growing industries. By divesting, the firm can free up resources to invest in more profitable businesses, reduce risks, and improve performance.

Question 15

A firm's supplier poses a greater threat if the supplier's industry has a large number of firms, none of which dominate the supplying industry, than if the supplier's industry is dominated by a small number of firms.

Accepted Answer

A supplier poses a greater threat when the supplier's industry is dominated by a small number of firms, as they have more power to influence prices and terms, compared to an industry with many firms where competition is higher and individual suppliers have less power.

Question 16

All divestments are caused by industry decline.

Accepted Answer

Divestments may be caused by a variety of factors, including a company's desire to focus on core business areas, changes in market dynamics, or a need to raise capital for other purposes. They are not always solely attributable to an industry's decline.

Question 17

If you were to purchase a new Apple iPod and were unable to use your previously downloaded library of digital music with your new iPod, this would be an example of a customer-switching cost you would incur to use Apple's product.

Accepted Answer

This statement is true since if a customer is unable to use their previously downloaded library of digital music on a new iPod, they would incur a cost to switch to Apple's product by having to either purchase their music again from Apple or find a way to transfer their music to the new device.

Question 18

Firms pursuing a harvest strategy in a declining industry do not expect to remain in the industry over the long term.

Accepted Answer

A harvest strategy is typically used when a company decides to extract as much value from a business as possible before exiting the industry, usually due to declining market conditions. Therefore, the goal of a harvest strategy is not to remain in the industry over the long term.

Question 19

A firm following a niche strategy in a declining industry reduces its scope of operations and focuses on narrow segments of the declining industry.

Accepted Answer

This statement is true. A firm following a niche strategy in a declining industry would focus on narrow segments of the industry and reduce its scope of operations to remain competitive. By serving a specific market segment with unique needs, the firm can differentiate itself from competitors and maintain profitability despite overall industry decline.

Question 20

A fragmented industry is an industry that has experienced an absolute decline in unit sales over a sustained period of time.

Accepted Answer

A fragmented industry is one in which no single company or group of companies has a dominant market share, rather than one that has experienced an absolute decline in unit sales over time.

Quiz 2: Evaluating a Firms External Environment