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63. The chief disadvantage of being a first mover is the:
a.
high degree of risk.
b.
high level of competition in the new marketplace.
c.
inability to earn above-average returns unless the production process is very efficient.
d.
difficulty of obtaining new customers.
64. Companies in fast-cycle markets need to profit quickly from an innovative product for all of the following reasons
EXCEPT:
a.
the technology used is not proprietary.
b.
the prices of component parts tend to rise rapidly.
c.
product prices fall quickly in fast-cycle markets.
d.
counterattacks from rivals come quickly.
65. Akamai Technologies is a dominant player in the content delivery network (CDN) market. Akamai is not very
diversified (i.e., is dependent on the CDN market). If rival CDN providers such as Limelight Networks and Level 3
Communications lower their basic CDN service prices, what would be Akamai’s likely response?
a.
Raise its prices
b.
Do nothing since it is the market leader
c.
Exit the industry
d.
Lower its prices
66. Quality affects competitive rivalry because a competitor whose products suffer from poor quality likely will
_____________ until ___________.
a.
initiate more competitive actions; the firm returns to profitability
b.
initiate fewer competitive actions; the quality problems are corrected
c.
initiate more competitive actions; the quality problems are corrected
d.
advertise more; customers believe the quality had improved
67. Both ____ and ____ affect the awareness and motivation of a firm to undertake actions and responses.
a.
first-mover advantages; corporate size
b.
market commonality; resource similarity
c.
management capabilities; competitive analysis
d.
speed of management decisions; management actions
68. Which of the following is TRUE of Walmart?
a.
Walmart has an unusual amount of flexibility for a large firm.
b.
Walmart’s success is largely due to the fact it has little market commonality with other industry firms.
c.
Decision-making responsibility is centered at its Arkansas headquarters, which allows the firm to respond
quickly to competitive attacks.
d.
Walmart’s advantage lies in its ability to “think big.”
69. The ability of Disney to maintain its competitive advantage through proprietary rights to its characters would be
severely weakened if:
a.
theme parks with alternative cartoon characters were built in large numbers.
b.
numerous lawsuits against copyright thieves tainted the reputation of the company.
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c.
Disney attempted to move beyond its traditional industry.
d.
Disney’s cartoon characters became widely perceived as old-fashioned and unappealing.
70. ____ and ____ describe the situation in which organizations are direct competitors and are fully aware of the
competition.
a.
High market commonality; high resource similarity
b.
High market commonality; low resource similarity
c.
Low market commonality; high resource similarity
d.
Low market commonality; low resource similarity
71. The larger the resources of a firm taking a competitive action compared with the resources of the other firms in the
industry, the ____ the response will be of these other firms.
a.
more fragmented
b.
slower
c.
larger
d.
more tactical
72. Intensified rivalry within an industry results in:
a.
increased hiring across the industry.
b.
increased total revenues across the industry.
c.
decreased average profitability across the industry.
d.
increased entries into the industry.
73. Because Coca-Cola, Nestle, and PepsiCo all sell a product (bottled water) that is essentially the same and all three
giant companies are engaged in battles for market share using incremental changes in their products and seeking loyalty to
brand names, it is most likely that the bottled water market is a(n):
a.
slow-cycle market
b.
standard-cycle market.
c.
fast-cycle market.
d.
intermediate-cycle market.
74. Which of the following is an example of a tactical action?
a.
Walmart’s launch of Sam’s Club stores
b.
Continental Airlines exit from a hub airport in Denver
c.
Netflix beginning to offer music in addition to movies
d.
Dell’s launch of a new line of high performance, custom-made PCs
75. Competition between candy makers (e.g., Hershey, Mars, Cadbury, Nestle, and Godiva) where firms package design
(including package downsizing) and ease of availability is characteristic of a(n):
a.
slow-cycle market
b.
standard–cycle market.
c.
fast-cycle market.
d.
intermediate-cycle market.
76. The CEO of the Wholesome Food retail grocery chain, which specializes in organic and natural produce and meat, has
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stated, “The key to success is to find your niche and focus on it, regardless of what anyone else does.” The CEO:
a.
realizes that he must understand competitors in order to predict their competitive actions and responses.
b.
understands that he is the market leader in his niche and thus has a sustainable competitive advantage.
c.
believes he has placed his firm in a slow-cycle industry where concerns about protecting unique competencies
dominate concerns about market share.
d.
realizes his firm has such lower resources than other competitors that his chain is “competitively invisible” to
them.
77. Walmart initially used a focused cost-leadership strategy to compete only in small communities by using sophisticated
logistics systems and efficient purchasing practices to gain a competitive advantage. The response of local competitors
was _______ because they ______.
a.
rapid; were nimble and flexible
b.
slow; lacked the ability to marshal resources
c.
rapid; perceived gains from responding to Walmart’s attack
d.
rapid; had the resources and flexibility compete against Walmart
78. Which company below committed significant resources to enter the information services market and, given its
success, was imitated by other competitors?
a.
Compaq
b.
IBM
c.
HP
d.
Dell
79. Which of the following is the most strategic action by Walmart?
a.
Aggressive pricing to ensure they are a price leader
b.
Aggressively pricing toys and electronics during the holiday season
c.
Aggressively pricing school-related items in the back-to-school season
d.
Entering a new foreign market
80. Hilliard Pharmaceuticals and Ahrens Vitamins, Inc., have high market commonality, both geographically and in the
market segments in which they compete. Hilliard, the number two firm in the industry, has undertaken a major strategic
attack upon Ahrens, the market leader. Which of the following statements is most likely to be TRUE?
a.
Ahrens will not respond aggressively since this is a strategic move and not a tactical action.
b.
As the market leader, Ahrens has little to fear from an attack by Hilliard and will not expend organizational
slack on a major response.
c.
Ahrens will respond aggressively because of the high multimarket contact between Hilliard and Ahrens.
d.
Ahrens will respond after a long delay as the nutrition supplement industry is a slow-cycle industry.
81. ____ markets are often described as volatile and innovative.
a.
Slow-cycle
b.
Fast-cycle
c.
Standard-cycle
d.
Sheltered
82. First movers are:
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a.
entrepreneurs who lead in the establishment of new industries.
b.
firms that are first to exit a declining industry.
c.
firms that take an initial competitive action.
d.
individuals who move frequently as employment opportunities change in a locale.
83. Which organization has the highest market dependence?
a.
a chain of rapid-service oil change shops
b.
a manufacturer of chemicals for the international pharmaceutical industry
c.
a regional department store having 26 locations in the Northwest
d.
a company that specializes in making replacement tiles for the space shuttle
84. Traditionally, the music industry signed multi-year contracts with artists and sold copyright protected music through
established distribution channels. A shift to the digital format and the rise of Internet technology has resulted in the
sharing of music over peer-to-peer networks, a practice the industry called “piracy.” In recent years, the music industry
has seen a rapid decline in the number of CDs sold. At the same time, the ownership of the distribution rights of musical
content under copyright laws remains clear. Attempts at innovation by individual record labels to offer music as direct
downloads to consumer are quickly copied by other labels. Based on these factors, the best assessment is that the music
industry has shifted from a ____ to a ____ cycle market.
a.
slow; fast
b.
slow; standard
c.
standard; slow
d.
standard; fast
85. Which of the following is an example of a strategic action?
a.
A “two movies for the price of one” campaign by Redbox
b.
Use of product coupons by a local grocer
c.
Entry into the European market by Home Depot
d.
Fare increases by Southwest Airlines
86. Competitors are more likely to respond to competitive actions that are taken by:
a.
differentiators.
b.
larger companies.
c.
first movers.
d.
market leaders.
87. Walt Disney’s focus on ____ is typical of a slow-cycle market.
a.
innovation
b.
total quality
c.
proprietary rights
d.
economies of scale
88. Bubble-Up, Inc., is a small manufacturer of educational toys for children under age 10. It has co-existed with three
other competitors in the educational toy industry for over 20 years, each of them maintaining a stable market share. There
is a wide-spread rumor that Mega-Toy, Inc., the market leader in the broad children’s toy market, has decided to target
educational toys. Which one of these statements is most likely TRUE?
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a.
The owners of Bubble-Up are unconcerned about Mega-Toy’s entry to the market because of the resource
dissimilarity between the firms.
b.
Bubble-Up’s greater organizational slack will allow it to aggressively attack Mega-Toy.
c.
Bubble-Up’s smaller size may make it more flexible in introducing innovations than Mega-Toy.
d.
Competitive rivalry will not increase for Bubble-Up because Mega-Toy is not dependent on the educational
toy market.
89. Research suggests that a firm with greater multimarket contact is _______ likely to initiate and attack, and _____
likely to respond aggressively when attacked.
a.
more; more
b.
less; more
c.
less; less
d.
more; less
90. Which pair of firms has the LEAST resource similarity?
a.
Small, family-owned Italian restaurant; Olive Garden
b.
Target; Walmart
c.
HP; Dell
d.
FedEx; UPS
91. Firms with few competitive resources are more likely to:
a.
not respond to competitive actions.
b.
respond quickly to competitive actions.
c.
delay responding to competitive actions.
d.
respond to strategic actions, but not to tactical actions.
92. In order to compete effectively, standard-cycle firms need all of the following EXCEPT:
a.
large market share.
b.
customer loyalty through brand name.
c.
careful control of operations to preserve consistency for customers.
d.
rapid and continuous product introductions.
93. Firms with ______ market commonality and _____ resource similarity are direct and mutually acknowledged
competitors.
a.
low; high
b.
low; low
c.
high; high
d.
high; low
94. Competitive dynamics refers to the:
a.
circumstances in which competitors are aware of the degree of their mutual interdependence resulting from
market commonality and resource similarity.
b.
set of competitive actions and competitive responses the firm takes to build or defend its competitive
advantages and to improve its market position.
c.
total set of actions and responses taken by all firms competing within a market.
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d.
ongoing set of competitive actions and competitive responses between competitors as they maneuver for
advantageous market position.
95. Late movers are those firms that:
a.
respond to a competitive action a significant amount of time after the first mover’s action and the second
mover’s response.
b.
respond to a first mover’s competitive action often through imitation or a move designed to counter the effects
of the action.
c.
take an initial competitive action (either strategic or tactical).
d.
typically achieve higher-than-average returns because they can imitate the most efficient actor.
96. Without quality, the firm’s products:
a.
can compete effectively on the basis of low price.
b.
lack credibility among customers.
c.
must be exported to developing countries, because they are not competitive in the United States or developed
countries.
d.
are associated with predatory competition.
97. Competitive rivalry has the most effect on a firm’s ____ strategies than the firm’s other strategies.
a.
business-level
b.
corporate-level
c.
acquisition
d.
international
98. Lawsuits over patent and copyright infringements are more common and intense in:
a.
fast-cycle markets because the market is innovation-driven.
b.
standard-cycle markets because the firm’s brand name is such an important competitive advantage.
c.
slow-cycle markets, because of the ability to shelter the company from imitation of its competitive advantage.
d.
standard-cycle markets because innovation is rare, and so gives the innovating firm a significant competitive
advantage.
99. A firm that is LEAST likely to launch competitive actions is one that has:
a.
organizational slack.
b.
advanced research and development.
c.
recently improved the quality of its products.
d.
large size.
100. A firm is likely to respond to an attack by a competitor in all of the following situations EXCEPT when:
a.
the attack is by a price predator.
b.
the attack makes the firm’s market position less defensible.
c.
the attack damages the firm’s ability to use its capabilities.
d.
the attack improves the competitor’s market position.
101. What factors contribute to the likelihood of a response to a competitive action?
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102. Define slow-cycle, fast-cycle, and standard cycle markets.
103. Define awareness, motivation, and ability in reference to competitive behavior.
104. Define competitive actions and responses and explain the two types of competitive actions and responses.
105. What is market commonality? What is resource similarity? How are these concepts combined to identify the level of
competition between two firms?
106. Define competitors, competitive rivalry, competitive behavior, and competitive dynamics.
107. What are the advantages and disadvantages of being a first mover, second mover, and late mover?
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Answer Key
1. True
2. True
3. True
4. True
5. True
6. False
7. True
8. False
9. False
10. False
11. False
12. True
13. True
14. True
15. False
16. True
17. True
18. False
19. True
20. True
21. False
22. False
23. True
25. False
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26. True
27. True
28. True
29. False
30. True
31. False
32. False
33. False
34. False
35. True
36. False
37. False
38. True
39. True
40. True
41. b
42. d
43. c
44. a
45. d
46. c
47. a
48. b
49. d
51. d
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52. a
53. b
54. a
55. c
56. a
57. d
58. a
59. b
60. b
61. d
62. b
63. a
64. b
65. d
66. b
67. b
68. a
69. d
70. a
71. b
72. c
73. b
74. c
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77. b
78. b
79. d
80. c
81. b
82. c
83. d
84. d
85. c
86. d
87. c
88. c
89. b
90. a
91. c
92. d
93. c
94. c
95. a
96. b
97. a
98. c
99. d
100. a
101. In general, a firm is more likely to respond to a competitive action if: (1) the action leads to better use of the
competitor’s capabilities to gain or produce stronger competitive advantage or to improve its market position, (2) the
action damages the firm’s ability to use its capabilities to create or maintain an advantage, or (3) the firm’s market position
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becomes less defensible. In addition, a firm is more likely to respond to a competitor’s tactical action, rather than to a
competitor’s strategic action. Strategic actions involve a significant commitment of resources and are difficult to
implement and reverse, as well as requiring time to put into place. In contrast, tactical actions can be implemented quickly
and are quickly reversed, and are relatively less costly than strategic actions. A firm is also more likely to respond to a
competitor’s action when the competitor is the market leader—a firm that has the reputation for above-average returns.
Successful actions by competitors are likely to be quickly imitated, even if not initiated by a market leader. Actions by
price predators are usually not responded to, nor are actions by firms with reputations for risky, complex, and
unpredictable behavior. Finally, competitors with high market dependence are likely to respond strongly to attacks
threatening their market position.
102. In slow-cycle markets, the firm’s competitive advantage is shielded from imitation for long periods of time and
imitation is costly. Competitive advantages are sustainable in slow-cycle markets. Successful firms in slow-cycle markets
have difficult-to–understand and costly-to-imitate advantages resulting from unique historical conditions, causal
ambiguity, and/or social complexity. These conditions can include copyrights, patents, and ownership of an information
resource. Firms in slow-cycle markets focus on protecting their competitive advantages and exploiting them as long as
possible. In fast-cycle markets, imitation happens quickly. Competitive advantages are not sustainable. Reverse
engineering and quick technology diffusion facilitate rapid imitation. In fast-cycle markets, innovation is critical and firms
avoid “loyalty” to any product. Firms must focus on rapidly and continuously developing new competitive advantages,
because prices fall quickly and firms need to profit rapidly from innovations, and move on to the next product. Fast-cycle
markets are volatile and the pace of innovation is frenzied. In standard-cycle markets, the firm’s competitive advantages
are moderately shielded from imitation and imitation is moderately costly. Competitive advantages are partially
sustainable if the firm can continuously upgrade the quality of its capabilities making its competitive advantage dynamic.
Typically, these markets have large firms seeking high market share, striving for customer brand loyalty, and controlling
their operations to give customers consistent experiences. Economies of scale are necessary for survival. Competition for
market share is intense and is often based on incremental innovation in a product rather than radical innovation.
103. Awareness, motivation, and ability are the drivers of competitive behavior. They influence the firm’s actions toward
and responses to competitors. Awareness is the extent to which competitors recognize the degree of their mutual
interdependence that results from market commonality and resource similarity. Awareness affects the extent to which the
firm understands the consequences of its competitive actions and responses. Awareness is greatest when firms have highly
similar resources. Motivation concerns the firm’s incentive to take action against a competitor or to respond to a
competitor’s attack. If the firm does not believe that attacking its competitors will improve its position, it will not act. If
the firm does not believe a competitor’s action will result in losses for it, it will not have motivation to respond. High
market commonality gives firms more motivation to attack and to respond to competitors’ actions than when market
commonality is low. Ability relates to each firm’s resources and the flexibility these resources provide. When a firm faces
a competitor with similar resources, careful study of a possible attack is essential because a competitor with similar
resources is likely to respond to competitive attack. When the resources between two competitors are very dissimilar, the
weaker firm will delay in responding to an attack by the stronger firm.
104. A competitive action is a strategic or tactical action the firm takes to build or defend its competitive advantages and
improve its market position. A competitive response is a strategic or tactical action the firm takes to counter the effects of
a competitor’s competitive action. A strategic action or strategic response is a market-based move that involves a
significant commitment of organizational resources and is difficult to implement or reverse. A tactical action or tactical
response is a market-based move that is taken to fine-tune a strategy. It involves fewer resources and is relatively easy to
implement and reverse. Strategic actions tend to receive strategic responses. Tactical actions tend to receive tactical
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involved and the degree of importance of the individual markets to each. When firms produce similar products and
compete for the same customers, the competitive rivalry is likely to be high. Firms competing against one another in
several or many markets engage in multimarket competition. Research suggests that a firm with greater multimarket
contact is less likely to initiate an attack, but more likely to respond when attacked. In general, multimarket competition
reduces competitive rivalry but some firms will still compete when the potential rewards (e.g., potential market share
gain) are high.
Resource similarity is the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in
terms of both type and amount. Firms with resource similarity are likely to have similar strengths and weaknesses and to
use similar strategies.
The combination of high or low market commonality and high or low resource similarity identifies whether firms are
competitors. Firms having both high market commonality and high resource similarity are direct and mutually
acknowledged competitors. If firms share few markets and have little similarity in resources they are not direct and
mutually acknowledged competitors.
106. Competitors are firms competing in the same market, offering similar products, and targeting similar customers.
Competitive rivalry is the ongoing set of competitive actions and competitive responses occurring between competitors as
they compete against each other for an advantageous market position. For the individual firm, the set of competitive
actions and responses it takes while engaged in competitive rivalry is called competitive behavior. Competitive dynamics
is the set of actions and responses taken by all firms that are competitors within a particular market.
107. First movers can gain market share, customer loyalty, and high revenues by being the first in the market. But, first
movers also take more risk because it is difficult to judge the returns the firm will earn from product innovations.
Moreover, if the first mover is successful, other firms will enter its arena. First movers tend to have a significant amount
of organizational slack to fund research and development. Second movers imitate the first movers, after they have studied
the first mover’s successes and mistakes. Consequently, second movers can develop more efficient processes and
technologies than first movers, which results in lower costs. Late movers react to the first and second movers’ actions after
a long delay. A late mover may be able to earn average returns if it has learned how to create at least as much value for
customers as the value created by the first and second movers. In general, late movers are relatively ineffective.