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1. Mass markets tend to be characterized by low profit margins.
a. True
b. False
2. An industry is defined as a group of firms producing goods and/or services that are similar to each other.
a. True
b. False
3. Industrial organization economics is a branch of economics that seeks to better understand how firms within an industry
may be both centralized and regulated.
a. True
b. False
4. The primary contribution of IO economics is the structure-conduct-performance model.
a. True
5. A key proposition of the five forces framework is that industry structure is unrelated to firm performance and
the strength of the five forces.
a. True
6. A key indicator of intense rivalry among firms is low cost competitive actions and reactions.
a. True
b. False
7. High exit costs from an industry tend to reduce the intensity of rivalry.
a. True
b. False
8. Product proliferation is a potential strategy used to reduce the threat of potential entry.
a. True
9. Substantial switching costs reduce the threat of potential entry.
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10. The threat of substitutes (products from different industries that satisfy customer needs being met by focal
firms) is greater if there are low switching costs.
a. True
b. False
11. Core features of the five forces model remain remarkably insightful when analyzing old industries but not
new phenomena, such as e-commerce.
a. True
12. If there are many buyers but only a few sellers, the buyers tend to have the most bargaining power.
a. True
13. If there are many sellers but only a few buyers, the sellers tend to have the most bargaining power.
a. True
b. False
14. In order for firms within an industry to be more likely to enjoy higher profitability, product differentiation should be
high.
a. True
b. False
15. It is easier to establish dominance and market share in an industry that provides big-ticket items.
a. True
16. Intel held numerous patents for semiconductors, allowing them to hold a significant share of the world’s market.
These patents represented a significant barrier to entry for other firms wanting to enter the lucrative semiconductor
business.
a. True
b. False
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17. By finding ways to reduce the per-unit cost of its products, a firm enjoys non-scale-based advantages that provide
greater profitability.
a. True
18. The three generic strategies include cost leadership, differentiation, and profitability.
a. True
b. False
19. One of the benefits of having a cost advantage is that it serves as barrier to entry.
a. True
b. False
20. The three generic strategies can strengthen a focal firm’s position relative to the five forces.
a. True
21. A focused firm avoids being either a specialized differentiator or a specialized cost leader.
a. True
22. Choosing whether to perform activities differently than rivals or to perform different activities than
competitors is the essence of the Three Generic Strategies.
a. True
b. False
23. If a low-cost firm has already achieved the maximum efficient scale, it must turn to differentiation to
distinguish itself from competitors.
a. True
b. False
24. Company Allgood is positions its products to target “average” customers for the mass market; Allgood is mostly likely
the cost leader among market participants.
a. True
b. False
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25. Cost leaders are significantly and negatively affected when strong suppliers decrease their prices.
a. True
26. Once a firm becomes a cost leader, it no longer has to search as diligently for lower costs.
a. True
b. False
27. An off-the-rack wedding dress would not be considered a highly differentiated product.
a. True
b. False
28. Telecommunications is an example of one industry in which one can determine exact boundaries.
a. True
29. Strategic alliances are on the decline.
a. True
b. False
30. The five forces model overemphasizes threats and downplays opportunities.
a. True
31. Strategies of firms within a strategic group tend to be differentand so does their performance.
a. True
b. False
32. Recent success of firms in unattractive industries suggests that firm-specific resources and capabilities are
not needed to determine firm performance.
a. True
b. False
33. The industry-based view ignores the impact of industry history and institutions on firm performance.
a. True
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34. The traditional view recommends avoidance of integration.
a. True
35. Recent work favors outsourcing and willingness to collaborate with suppliers/buyers, as well as competitors.
a. True
36. Japanese firms do not tend to maintain close relationships with their suppliers.
a. True
37. In an industry-based view, not every firm within an industry competes against each other.
a. True
b. False
38. When demand is uncertain, integration increases strategic flexibility.
a. True
39. In an industry-based view, firms should strive for integration and avoid outsourcing.
a. True
b. False
40. For a savvy strategist, the five forces framework provides for a strong beginning, middle, and end of
strategic analysis.
a. True
b. False
41. Which of the following is true of the industrial organization (IO) economics model?
a. Industry structure determines firm performance, which determines strategy and conduct.
b. Original goal – help regulators set policy to minimize the ability of firms to earn excess profits.
c. Strategists avoid the IO model to try to earn above-average returns (excess profits).
d. All of the above are true.
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42. Economist ________________ defined perfect competition as a situation in which price is set by the
“market,” all firms are price takers, and entries and exits are relatively easy.
a. Michael Porter
b. John Maynard Keynes
c. Adam Smith
d. Richard Branson
43. The relative bargaining power of the focal firm and (according to the traditional view) the degree of
integration helps answer which of the following questions?
a. Why do firms differ?
b. How do firms behave?
c. What determines the scope of the firm?
44. Which of the following tends to reduce the intensity of rivalry?
a. Similarity of firms in terms of size, market influence and product offerings.
b. Products are big-ticket items and purchased infrequently.
c. New capacity can be added in small increments.
45. Which of the following are scale-based low cost advantages?
a. Experience curves.
b. Proprietary technology.
c. Favorable access to raw materials and distribution channels.
d. Favorable locations.
46. Which of the following would tend to reduce the bargaining power of suppliers?
a. Dominance of the supplier industry by a few firms.
b. Suppliers provide unique, differentiated products with few or no substitutes.
c. Focal firm is not an important customer.
d. Unwillingness and inability of suppliers to integrate forward.
47. Which of the follow would tend to reduce the bargaining power of buyers?
a. Large number of buyers.
b. Products of the industry do not produce clear cost advantages or enhance the quality of life for buyers.
c. Purchase standard, undifferentiated commodity products from suppliers.
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d. Willingness and ability of buyers to integrate backward.
48. The luxury market is characterized by:
a. Fewer competitors than in a mass market.
b. Less use of incentives and price cuts to induce purchases.
c. Healthier profit margins than in a mass-market segment.
d. All of the above.
49. Porter’s five forces framework:
a. Identifies relevant variables but fails to ask the needed questions.
b. Identifies only questions to ask.
c. Identifies both relevant variables and questions to ask.
d. Eliminates the need for other frameworks to add insight about firm performance.
50. Maximizing opportunities and minimizing threats presented by the five forces provides some answers to
which of the following questions?
a. Why do firms differ?
b. How do firms behave?
c. What determines the scope of the firm?
51. Which of the following is NOT one of the forces in Porter’s five forces framework?
a. The intensity of collaboration among rivals.
b. The threat of potential entry.
c. The bargaining power of buyers.
52. Competitors that typically compete most vigorously with each other:
a. Are of different sizes and with similar market influence.
b. Have highly differentiated product offerings.
c. Offer big-ticket items to their market.
53. Which of the following are true concerning cost leadership?
a. Targets average customers for mass market – little differentiation.
b. Key functional areas are manufacturing and materials management.
c. Relentless drive to cut costs might compromise value that customers desire.
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54. Which is generally NOT true of differentiation?
a. Inability to pass on suppliers’ price increases to buyers.
b. Relentless efforts of competitors to duplicate differentiation.
c. Key areas of application include research and development, marketing/sales and after-sale services.
d. It is a challenge to identify attributes that are valued by customers in each market segment.
55. Porter’s three generic strategies are:
a. Industry-based view, resource-based view, and institution-based view.
b. Cost leadership, differentiation, and focus.
c. Rivalry among competitors, threat of potential entry, and threat of substitutes.
d. Potential profitability, assessment of opportunities, and challenge of threats.
56. Porter’s three generic choices address how a firm is to make strategic choices in order to:
a. Become an incumbent firm with excess capacity.
b. Allow buyers to enhance their bargaining power.
c. Strengthen the focal firm’s position relative to the five competitive forces.
d. Establish structures that increase the costs of entry and reduce the scale of production.
57. Which of the following firms exhibits a cost leadership strategy?
a. Company A’s products meet customers’ needs in several niche markets.
b. Company B takes a low-volume high-margin approach in targeting customers for its products.
c. Company C targets customers who are willing to pay a premium price.
d. Company D targets the average customer.
58. Which of the following firms exhibits a differentiation strategy?
a. Company A constantly searches for lower costs in providing its products.
b. Company B takes a high-volume low-margin approach in targeting customers for its products.
c. Company C targets customers who are willing to pay a premium price.
d. Company D targets the average customer.
59. Which of the following firms exhibits a focus strategy?
a. Company A’s products meet customers’ needs in a particular niche market.
b. Company B takes a high-volume low-margin approach in targeting customers for its products.
c. Company C targets customers who are looking for the lowest price.
d. Company D targets the average customer.
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60. For firms following a cost leadership strategy, their goal is a:
a. High-volume how-margin approach.
b. High-volume high-margin approach.
c. Low-volume high-margin approach.
d. Low-volume low-margin approach.
61. The main goal of a differentiation strategy is to:
a. Target the average customers for mass market.
b. Identify the attributes and deliver products that attract customers willing to pay a premium price.
c. Relentlessly cut costs in producing the products customers desire.
d. All of the above.
62. One of the drawbacks of the differentiation strategy is that:
a. Customers are unwilling to pay a premium price for differentiation.
b. It is difficult to sustain the basis of differentiation in the long run.
c. The firm is forced to continuously search for lower costs.
d. The bargaining power of suppliers presents a significant problem to differentiators.
63. A niche market that is the goal of a focus strategy may have all of the following characteristics EXCEPT:
a. It is defined by a specific geographical area.
b. It is defined by a specific geographical area.
c. It is define by product line.
d. It is defined by imitation of competitors.
64. Related and supporting industries are called _________ and they are an additional force that can impact the
competitiveness of an industry.
a. Complementors
b. Supporters
c. Customizers
65. One controversial issue with strategic groups is:
a. Stability of strategic groups.
b. Lack of mobility barriers between strategic groups.
c. How easy it is to obtain large quantities of objective data.
d. All of the above are controversial issues.
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66. The industry-based view recommends:
a. Backward integration as a way to defend against the power of suppliers.
b. Backward integration as a way to defend against the power of buyers.
c. Forward integration as a way to defend against the power of suppliers.
d. Backward or forward integration as a way to defend against the power of suppliers and buyers.
67. Which is a reason for choosing integration as opposed to outsourcing?
a. Decreased expense.
b. Strategic flexibility is enhanced.
c. Those within the firm are often more competitive.
d. The activity is not crucial to the core business.
68. Which is a reason for choosing outsourcing as opposed to integration?
a. More expensive.
b. Strategic flexibility is enhanced.
c. Those inside the firm are often more competitive.
d. The activity is crucial to the core business.
69. Which of the following is NOT true regarding supplier relationships?
a. Supplier relationships that are too close may introduce rigidities, including loss of flexibility.
b. In Japan suppliers may become trusted members of the keiretsu.
c. In Japan, instead of treating suppliers as adversaries, they are treated as collaboration partners.
d. Supplier relationships in Japan tend to be ineffective.
70. The ultra-luxury automobile market is characterized by:
a. A great deal of competition in the past – but that is changing.
b. A small number of cars produced each year – but they are very expensive.
c. Being the same as the luxury market.
d. A and B above.
71. A systematic foundation for industry and competitor analysis is best provided by:
a. The industry-based view.
b. Resource-based view.
c. Historical view.
d. Macro analysis.
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72. An industry-based view provides some answers to which of the following questions?
a. Why do firms differ?
b. How do firms behave?
c. What determines the scope of the firm?
d. All of the above.
73. Strategists using the industry-based view need to:
a. See it as a powerful strategic tool.
b. Arrive at an uncritical acceptance of the traditional view.
c. Identify their firm within an industry in a boundary-less way.
d. Avoid strategic alliances.
74. A complementor that sells products that add value to a focal industry’s products:
a. Does not affect the competitiveness of an industry.
b. Is almost always high-tech in nature.
c. Can act as a sixth force in the five forces framework.
d. None of the above.
75. Which of the following is true about firms that pursue both strategies of cost leadership and differentiation?
a. They become “stuck in the middle” with resulting poor performance.
b. They cannot be successful in both strategies.
c. Flexible manufacturing enables a firm to produce differentiated products at low costs in many cases.
d. Mass customization is the inevitable result of combining strategies.
76. Every firm within a broadly defined industry:
a. Is uniformly influenced by advances in technology.
b. Succeeds best by following a strategy that combines cost leadership and differentiation.
c. Competes against each other.
d. Can usually be placed in one of several strategic groups within that industry.
77. Which of the following statements about strategic groups is most accurate?
a. Firms within an industry can easily move from one strategic group to another.
b. Members of strategic groups are often subject to mobility barriers.
c. An abundance of objective data within industries prevents classification of strategic groups.
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78. Activities that are crucial to a firm’s core business:
a. Should be outsourced to increase a firm’s strategic flexibility.
b. Should be managed through a keiretsu structure.
c. Should not be outsourced.
d. Should always be outsourced.
79. Which of the following questions is NOT essential to determining the scope of a firm?
a. Can opportunities be leveraged by outsourcing?
b. Have we optimized industry as destiny?
c. Are we focused on core activities?
d. Will collaboration with competitors be beneficial?
80. Which of the following is characteristic of a savvy strategist?
a. Focusing on the five forces as a way to understand an industry inside and out.
b. Understanding that structurally unattractive industries do not allow for firm success.
c. Using the five forces framework as the beginning, middle, and end of any good strategic analysis.
d. Realizing that industry is destiny.
81. An intense focus on above-average firm performance is shared by IO economists and those involved in the
strategy of firms and yet their perspective is opposite of each other. Explain.
82. How can high exit costs increase the chance that firms may continue to operate for at least a while when
operating at a loss? Explain by giving examples.
83. Many high-technology industries are characterized by network externalities. What are those externalities and
how can they pay off?
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84. How can backward integration be used by buyers and what are some examples?
85. The text discusses how the five forces framework continues to influence strategic practice and research.
According to the text, what are the lessons offered by the five forces framework?
86. What are the “Three Generic Strategies,” and what lessons can we learn from their use?
87. Describe the advantages and disadvantages of pursuing a cost leadership strategy?
88. Describe a situation in which a focus strategy would be most effective.
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89. In the 1990s, Porter added a sixth force to his five forces framework. Describe that sixth force and give an
example of its use in determining a firm’s strategy.
90. What are the fundamental questions that can be answered using an industry-based view, and what do the
answers to those questions imply for taking strategic action?