Strategic Management and Competitive Advantage, 4e (Barney)
Chapter 2 Evaluating a Firm’s External Environment
1) A firm’s general environment consists of broad trends in the context within which the firm
operates that can have an impact on the firm’s strategic choices.
2) In general, technological change creates opportunities, but not threats.
3) The aging of the “baby boomer” generation in American society is an example of a
demographic trend.
4) Culture is the values, beliefs and norms that guide a behavior in a society, and culture is
largely the same across the world.
5) A severe recession that lasts for several years is known as a depression.
6) In the structure-conduct-performance model, the term “structure” refers to industry structure,
measured by such factors as the number of competitors in an industry.
7) In the structure-conduct-performance model, the term “performance” refers solely to the
performance of individual firms.
8) In a perfectly competitive industry, a large number of firms have products and services that
are similar to each other and it is not very costly for firms to enter into or exit these markets.
9) The S-C-P model assumes that any competitive advantages a firm has in an industry must
benefit society.
10) According to the S-C-P model, attributes of the industry structure within which a firm
operates define the range of options and constraints facing a firm.
11) The five forces framework is based on the S-C-P model and identifies the five most common
threats facing firms from their local competitive environment and the conditions under which
these threats are more or less likely to be present.
12) Within the five forces framework, when all five threats are very high competition in the
industry begins to approach a monopoly.
13) Monopolistically competitive industries consist of only a single firm.
14) To a firm seeking competitive advantage, an environmental threat is any individual, group,
or organization outside a firm that seeks to reduce the level of that firm’s performance.
15) The threat of entry in an industry depends on the cost of entry, and the cost of entry, in turn,
depends upon the existence and “height” of barriers to entry.
16) Diseconomies of scale exist in an industry when a firm’s costs fall as a function of that firm’s
volume of production.
17) Brand identification and customer loyalty serve as entry barriers because new entrants not
only have to absorb the standard costs associated with starting production in a new industry, but
also have to absorb the costs associated with overcoming an incumbent firm’s differentiation
advantages.
18) Proprietary technology is more important as a barrier to entry than is managerial know-how.
19) Learning-curve cost advantages are present when the cost of production falls with the
cumulative volume of production.
20) The threat of rivalry tends to be high in an industry when firms are able to meaningfully
differentiate their products.
21) In an industry, the products or services provided by a firm’s rivals 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.
22) 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.
23) Suppliers are a greater threat to firms in an industry when suppliers are threatened by
substitutes.
24) 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.
25) If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage
firm were to open its own diamond brokerage firm, this would be an example of forward vertical
integration.
26) In general, it is rarely the case that all five forces in the five forces framework will be equally
threatening at the same time.
27) 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.
28) 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.
29) It is possible for a single firm to be a complementor of one firm and a competitor of another.
30) 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.
31) 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.
32) 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.
33) 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.
34) Mature industries are characterized by elements such as slowing growth in total industry
demand, a slowdown in increases in product capacity, and an overall increase in the profitability
of firms in the industry.
35) Product innovation is an effort to refine and improve a firm’s current processes.
36) A fragmented industry is an industry that has experienced an absolute decline in unit sales
over a sustained period of time.
37) A firm following a niche strategy in a declining industry reduces its scope of operations and
focuses on narrow segments of the declining industry.
38) Firms pursuing a harvest strategy in a declining industry do not expect to remain in the
industry over the long term.
39) The objective of divestment is to extract a firm from a declining industry.
40) All divestments are caused by industry decline.
41) The ________ consists of broad trends in the context in which a firm operates that can have
an impact on a firm’s strategic choices.
A) micro-environment
B) general environment
C) task environment
D) internal environment
42) All of the following are elements of the general environment except
A) technological trends.
B) demographic trends.
C) industrial trends.
D) cultural trends.
43) ________ is/are the distribution of individuals in a society in terms of age, sex, marital
status, income, ethnicity, and other personal attributes that may determine buying patterns.
A) Demographics
B) Economics
C) Technological trends
D) Culture
44) The values, beliefs and norms that guide behavior in society are known as
A) climate.
B) demographics.
C) economics.
D) culture.
45) When activity in an economy is relatively low for a short period of time, the economy is said
to be in a
A) recession.
B) depression.
C) prosperous cycle.
D) boom.
46) Civil wars, political coups, terrorism, wars between countries, famines, and country or
regional economic recessions are all examples of which element of the general environment?
A) Demographics
B) Specific international events
C) Economics
D) Culture
47) In the S-C-P model, ________ refers to the strategies that firms in an industry implement.
A) structure
B) strategy
C) conduct
D) performance
48) In a perfectly competitive industry,
A) there are relatively few firms operating in the industry.
B) the products and services sold by firms in the industry are very different from each other.
C) it is very costly for firms to enter the industry.
D) it is not very costly for firms to exit the industry.
49) Within the five forces framework, the five most common threats facing firms from their
competitive environment include each of the following except
A) substitutes.
B) complementors.
C) suppliers.
D) buyers.
50) Firms in industries characterized by ________ can expect to earn only competitive parity.
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
51) Which type of competition is characterized by a large number of firms, heterogeneous
products and low cost of entry and exit?
A) Perfect competition
B) Monopolistic competition
C) Oligopoly
D) Monopoly
52) Which type of competition is characterized by a small number of firms, homogeneous
products and costly entry and exit?
A) Perfect competition
B) Monopolistic competition
C) Oligopoly
D) Monopoly
53) A(n) ________ is any individual, group, or organization outside a firm that seeks to reduce
the level of that firm’s performance.
A) environmental threat
B) environmental opportunity
C) environmental equalizer
D) competitive advantage
54) Firms that have either recently begun operations in an industry or that threaten to begin
operations in an industry soon are considered to be ________ in the five forces framework.
A) barriers to entry
B) new entrants
C) suppliers
D) buyers
55) ________ exist when a firm’s cost rise as a function of its volume of production.
A) Economies of scale
B) Economies of scope
C) Diseconomies of scale
D) Learning cure effects
56) All other things being equal, which of the following would lead to lower barriers to entry in
an industry?
A) The existence of economies of scale in the industry
B) Products are highly differentiated in the industry.
C) Industry incumbents have learning-curve cost advantages.
D) Raw materials are widely and readily available at a competitive price.
57) Frequent price cutting by firms in an industry, frequent introduction of new products by
firms in an industry and intense advertising campaigns are indications of
A) high power of buyers.
B) high threat of entry.
C) high levels of rivalry.
D) high threat of substitutes.
58) Rivalry tends to be high when
A) there are few firms in an industry and these firms tend to be unequal in size.
B) the industry growth rate is higher.
C) firms are unable to differentiate their products.
D) production capacity can be added in small increments.
59) The products or services provided by a firm’s rivals meet ________ customer needs in
________ ways as the product provided by the firm itself.
A) different; the same
B) approximately the same; the same
C) different; different
D) approximately the same; different
60) The products or services provided by a firm’s substitutes meet ________ customer needs in
________ ways as the product provided by the firm itself.
A) different; the same
B) approximately the same; the same
C) different; different
D) approximately the same; different
61) Which of the following statements regarding substitutes is accurate?
A) In the extreme, substitutes can ultimately replace an industry’s products or services.
B) Substitutes place a floor on the prices firms in an industry can charge and on the profits firms
in an industry can earn.
C) Substitutes rarely impact the profitability that firms in an industry can earn.
D) The importance of substitutes in reducing the profit potential in a wide variety of industries is
decreasing.
62) ________ make a wide variety of raw materials, labor and other critical assets available to
firms.
A) Buyers
B) Rivals
C) Suppliers
D) Substitutes
63) Which if the following attributes makes suppliers a stronger threat?
A) The supplier’s industry is dominated by a small number of firms.
B) When the product or service provided by suppliers is not highly differentiated
C) When suppliers are threatened by substitutes
D) When suppliers are not able to enter into and begin competing in a firm’s industry
64) Which of the following is the best example of forward vertical integration?
A) A car dealership opening up its own automobile manufacturing plant
B) A car company opening its own dealerships to sell its products directly to customers
C) A car company opening its own chain of video rental stores
D) A car company opening a plant to product motorcycles
65) Buyers tend to have less power when
A) a firm has only one buyer, or a small number of buyers.
B) the products or services being sold to buyers are standard and not differentiated.
C) the supplies they purchase are an insignificant portion of the costs of their final products.
D) they are not earning significant economic profits.