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Test Bank Appendix 13A
Appendix 13A—Entry Deterrence and Accommodation Games
MULTIPLE CHOICE
1. In deciding whether to invest in excess capacity in order to deter entry, incumbents should consider all
of the following except
a.
the order of play in pricing and capacity choice decisions
b.
the customer sorting pattern
c.
the sunk cost required to achieve excess capacity
d.
the joint-profit-maximizing cartel output
e.
the potential entrant's projected profitability
2. An inverse intensity customer sorting rule is one in which
a.
customers with high willingness to pay secure the discounted goods
b.
customers are rationed randomly between the discounted and full price goods
c.
no customers purchase below their willingness to pay
d.
customers with the lowest willingness to pay secure the discounted goods
e.
brand loyalty allows the incumbent to retain its regular customers
3. An efficient customer sorting rule is one in which
a.
customers with high willingness to pay secure the discounted goods
b.
customers are rationed randomly between the discounted and full price goods
c.
no customer purchase below her willingness to pay
d.
customers with the lowest willingness to pay secure the discount goods
e.
brand loyalty allows the incumbent to retain its regular customers
4. All of the following are sunk cost investments that precommit an incumbent to aggressively defend
market share and the cash flow prior to threatened entry except
a.
reputational investments in company logos (e.g., Beatrice)
b.
automobile showrooms
c.
retail displays which hold only L’eggs egg-shaped hosiery packages
d.
neon signage for an independently owned Krispy Kreme store
e.
excess capacity in a declining industry
