Chapter 13: Competitive Dynamics
TRUE/FALSE
1. Cisco managed to scare off the Chinese up-start Huawei and continues to dominate its market.
2. Huawei and Cisco ended up fighting some of their competitive differences in court.
3. An oligopoly is an industry with exactly two competitors.
4. Sun Tze expressed the idea of competitor analysis with the phrase ‘if you know the enemy and know
yourself, your victory will not stand in doubt.
5. Competitive dynamics is about the dynamics of actions taken by different decision makers in a firm.
6. Writings about strategy in the military context provide a concise guidance on how businesses should
think about competitive strategies.
7. In competitive settings, awareness can usually be assumed and does not merit further investigation.
8. Firms benefitting from political patronage may be less motivated to use competitive countermoves to
react to a foreign entrant.
9. Companies with large excess capacity are more capable to reacting to a competitive entry by engaging
in price competition.
10. Adam Smith emphasized that honourable businesspersons do not collude with each other.
11. Collusion can be done tacitly, that is without an explicit agreement.
12. Cartels are also known as trusts, and anti-cartel policy is known as anti-trust policy.
13. Cartels are agreements between two or more competitors to fix prices or divide markets.
14. The prisoners’ dilemma shows that agreements without enforcement mechanisms are actually effective
in preventing colluding firms to cheat on each other.
15. Tit for tat is a strategy that, if played consistently by both side, usually leads to a mutually agreeable
outcome.
16. In repeated games, a collusive outcome is less likely.
17. The higher the concentration ratio in an industry the easier it is to organize collusion.
18. A price leader is a firm that has a dominant market share and therefore can set prices in an industry.
19. Homogenous products make collusion easier.
20. Multi-market competition occurs, for example, when firms compete with the same competitors in
several countries.
21. Multi-market competition makes collusion more difficult.
22. Cross-market retaliation between competitors competing on price leads to lower prices for customers.
23. A price match guarantee is likely to lead to a price war.
24. In the EU, competition policy is solely responsibility of the national governments.
25. Empirical evidence suggest that more competitive markets lead to higher prices for consumers.
26. Anti-trust laws started to be introduced in many EU countries after the establishment of the EU in
1958.
27. The EU Competition Commissioner is a key regulatory authority with respect to competition.
28. Competition policy is concerned with the prevention of the destruction of competitive market
structures, not with the creation of competitive market structures.
29. Investigations by the competition authorities usually lead to quick and clear decisions that companies
have to comply with.
30. Anti-dumping legislations is an extension of competition law that applies the same criteria to foreign
entrants that also apply to domestic firms.
31. Patenting of technologies is a key tools of competitive strategy in many high tech industries.
32. In a recession, survival strategies focus on retaining liquidity and a positive cash flow.
33. In a recession, high end brand face difficult choices between lowering prices and the brand positioning
in the long run.
34. Entrepreneurs often see recession as an opportunity to advance new business models, and to hire
talented individuals that in better times would choose to big corporations.
35. Scenario planning is a technique that helps businesses to develop fine-grained plans of action for the
most likely future path of industry evolution.
MULTIPLE CHOICE
1. What was the initial competitive advantage of Huawei’s products?
a.
Better connection
c.
Customer service
b.
Better quality
d.
Lower price
2. While the filed complaint may have been over property license, which was the underlying issue behind
the Huawei versus Cisco case?
a.
It was about illegal predator pricing.
b.
It was about dumping.
c.
It was only about property rights.
d.
It was about a market attack and counterattack between highly competitive firms.
3. “People of the same trade seldom meet together, even for merriment and diversion, but their
conversation often ends in conspiracy against the public.” This quote from Adam Smith is referring to
which of the following business relationship terms?
a.
Cooperation
c.
Competition
b.
Collaboration
d.
Collusion
4. Which of the following is an area that studies how competing parties interact?
a.
Prisoner’s dilemma
c.
Explicit collusion
b.
Game theory
d.
Competitive analysis
5. Which is NOT one of the five factors attributed to collusion and incentives to cheat?
a.
High entry barriers
c.
Strong industry price leader
b.
Homogenous products
d.
Low concentration ratio
6. Which of the following industry structures contribute to collusion?
a.
Low barriers to entry
c.
Low concentration of the industry
b.
Existence of an industry price leader
d.
Lack of market commonality
7. The percentage of total industry sales accounted for by the top firms is:
a.
Concentration ratio
c.
Commonality ratio
b.
Collusion index
d.
Barriers to entry
8. A price leader is a firm that ________ in the industry.
a.
Has a dominant market share and sets acceptable prices
b.
Sets the globally consistent price
c.
Sets the lowest prices
d.
Sets the highest prices
9. Which is defined as the degree of overlap between two rival markets?
a.
Mutual forebearance
c.
Multimarket competition
b.
Market commonality
d.
Cross-market retaliation
10. Mutual forbearance is a type of:
a.
Explicit collusion
c.
Tacit collusion
b.
Cross-market retaliation
d.
Multimarket competition
11. ________ is an attack on a competitor’s other markets if this competitor attacks a firm’s original
market.
a.
Multimarket dependency
c.
Mutual forbearance
b.
Cross-market retaliation
d.
Market commonality
12. The market balance between competition and cooperation as well as efficiency and fairness is guided
by ________.
a.
Multimarket competition
c.
Mutual forebearance
b.
Competition policy
d.
Antitrust policy
13. The act of setting prices below cost to eliminate rivals while intending to raise them in the long run to
make up for the initial losses is known as:
a.
Dumping
c.
Predatory pricing
b.
Collusive price setting
d.
Counter attack
14. Dumping is defined as:
a.
A domestic company selling below cost
b.
An exporter selling below cost abroad
c.
An exporter selling above cost abroad
d.
A domestic company selling above cost
15. Collusive price setting refers to price setting by monopolists at a level:
a.
Lower than the competitive level
c.
Higher than the competitive level
b.
Same as the competitive level
d.
That is globally consistent
16. Since only about 5% of patents end up having any economic value, why do firms continue to develop
so many?
a.
It closes in the shared space between firms’ ideas, requiring firms to either reach some
mutual forbearance or pay rivals to use their ideas.
b.
Firms with a high volume of patents tend to trade at a premium.
c.
The 5% is worth the costs.
d.
All of these answers
17. Which pair of words is used to describe the initial set of actions a firm uses to gain competitive
advantage and the other firm’s response to it?
a.
Cause, effect
c.
Attack, counterattack
b.
Offensive move, defensive move
d.
Strategic move, responsive move
18. Blue ocean strategy focuses on:
a.
Leading a price war
b.
Developing new markets
c.
Attacking new markets explored by rivals
d.
Attacking core markets defended by rivals
19. If a firm wished to counterattack but then changed its mind because the attacked market is of marginal
value, this is an example of:
a.
Capabilities
c.
Timing
b.
Awareness
d.
Motivation
20. In the EU, competition policy is the responsibility of:
a.
The EU Commission in Brussels
b.
Regional Authorities in member states
c.
The EU competition authority in London
d.
National Government in member states
21. Leniency programmes create incentives for firms to behave in what ways?
a.
To be lenient with suppliers failing to live up to contractual obligations
b.
To be lenient with competitors suggesting collusive action
c.
To report competitors with whom the company colludes to the authorities
d.
To be tough on suppliers failing to live up to contractual obligations
22. Which of the following is an example of market division collusion?
a.
A French firm and a German firm agreeing that they do not attack their respective home
country markets.
b.
A French firm and a German firm agreeing that the French firm only supplies the East
coast states of the US, while the German firm supplies only the West coast states of the
US.
c.
A French firm and a German firm agreeing that the French firm only supplies Southern
European markets, and the German firm only supplies Northern and Eastern European
markets.
d.
All of these answers
e.
None of these answers
23. In a famous case of European competition policy rulings, Unilever was fined because it offered
freezers to retailers on the condition that no competitors’ products be displayed in these freezers. This
was judged to be what?
a.
Unauthorized mergers
c.
Creation of monopoly
b.
Abuse of a dominant market position
d.
Market division collusion
24. Which of the following is an example of predatory pricing that is likely to be found illegal?
a.
A bus company offering free rides on buses that were in direct competition with buses of a
new competitor, but not on other lines.
b.
A bus company raising prices after a competitor withdrew from the market.
c.
A bus company lowering its prices after a competitor started offering services within its
area of operation.
d.
All of these answers
e.
None of these answers
25. EU competition policy also monitors the actions of national governments with respect to which
activity?
a.
Subsidies aiming to attract foreign investors
b.
Subsidies for R&D activities of firms of the same nationality only
c.
Financial support to companies faced with the prospect of bankruptcy
d.
All of these answers
e.
None of these answers
26. Defender strategy focuses on ________ assets in areas in which MNEs are ________.
a.
Local…..strong
c.
Local…..weak
b.
Overseas…..strong
d.
Overseas…..weak
27. ________ best suits the situation when the pressures to globalize are relatively low, and local firms’
strengths lie in a deep understanding of local markets.
a.
Extender strategy
c.
Contender strategy
b.
Dodger strategy
d.
Defender strategy
28. ________ is the strategy that focuses on a firm engaging in rapid learning and then expanding
overseas.
a.
Dodger strategy
c.
Defender strategy
b.
Contender strategy
d.
Extender strategy
29. ________ centers on cooperating through joint ventures with MNEs and sell-offs to MNEs.
a.
Contender strategy
c.
Defender strategy
b.
Extender strategy
d.
Dodger strategy
30. If a firm is operating in an environment with a high pressure for globalization, which is the most
preferred strategy?
a.
Defender strategy
c.
Dodger strategy
b.
Collusion strategy
d.
Extender strategy
31. What is a major counterpoint to the argument that dumping will run out all foreign rivals?
a.
It is too difficult to eliminate all rivals and recoup losses by charging higher monopoly
prices.
b.
There is no counter argument and dumping by MNEs is a strong fear of local firms.
c.
MNEs and local firms are more focused on mutual forbearance than intense competition.
d.
Governments have strict and highly enforced rules protecting local firms from dumping
practices.
32. Which of the following is not an appropriate application of scenario analysis?
a.
To gain a better understanding of the existing rules and regulations in a country
b.
To gain a better understanding of likely industry trends
c.
To gain a broader understanding of the possible range of new regulatory regimes that
might be adopted by the EU
d.
To gain a better understanding of the possible impacts of new technologies
33. What is the relationship between anti-dumping rules and rules against predatory pricing?
a.
In practice they are very similar, though the theoretical justification is very different
b.
The theoretical justification of the policies is similar, but in practice they are implemented
very differently
c.
In theory and in practice they follow the same principles
d.
Neither of these rules is grounded in any economic theory.
34. Before taking action in a dynamic competition, companies are advised to:
a.
Discuss their strategy with their competitor
b.
Analyse the competitors’ likely response
c.
Discuss their strategy with the regulatory authorities
d.
All of these answers
e.
None of these answers
ESSAY
1. Explain why interaction is the key word in competition and how interaction differs between tacit
collusion and explicit collusion.
2. Explain how foreign firms are discriminated against by antidumping regulations.
3. Explain how a firm’s organization affects its ability to engage in competitive actions.
4. Under what conditions might a firm adopt a contender strategy?
5. State your reasons for supporting or opposing antidumping restrictions.
6. What are the key principles of the institutional framework created by the EU for competition?
7. With the EU, how can small firms compete against big multinational competitors?
8. Explain how companies may react in a deep recession, such as the global slowdown of 2008/09, to
ensure survival during the recession!
