67) ________ exists when two or more diversified firms simultaneously compete in multiple
markets.
A) Multipoint competition
B) Dynamic competition
C) Multipoint cooperation
D) Dynamic cooperation
68) For multipoint competition to lead to mutual forbearance,
A) the threat of retaliation must be substantial and the firms pursuing this strategy must have
strong linkages among their diversified businesses.
B) the threat of retaliation must be low and the firms pursuing this strategy must have strong
linkages among their diversified businesses.
C) the threat of retaliation must be low and the firms pursuing this strategy must have weak
linkages among their diversified businesses.
D) the threat of retaliation must be substantial and the firms pursuing this strategy must have
weak linkages among their diversified businesses.
69) When diversified firms use the revenues from profitable businesses to subsidize the
operations of another business and then set the prices of the subsidized firm’s products at a level
that is below the subsidized business’s cost to produce these items, this is known as ________
pricing.
A) dynamic
B) monopoly
C) predatory
D) beneficial
70) Research over the years has demonstrated conclusively that the primary determinant of the
compensation of top managers in a firm is
A) not the size of the firm, usually measured in sales, but the economic performance of the firm.
B) both the economic performance of the firm as well as the size of the firm, usually measured in
sales.
C) not the economic performance of the firm but the size of the firm, usually measured in sales.
D) neither the economic performance of the firm nor the size of the firm.
71) Which of the following economies of scope do not have the potential for generating positive
returns for a firm’s equity holders since the economies of scope can be realized by outside equity
holders at a low cost by investing in a diversified portfolio of stock?
A) Shared activities
B) Diversification to maximize the size of a firm
C) Internal capital allocation
D) Exploiting market power
72) The only economy of scope that an unrelated firm can try to realize is
A) core competencies.
B) tax advantages.
C) multipoint competition.
D) risk reduction.
73) Which of the following economies of scope is costly to duplicate?
A) Shared activities
B) Internal capital allocation
C) Risk reduction
D) Task advantages
74) Which of the following economies of scope is less costly to duplicate?
A) Employee compensation
B) Core competencies
C) Multipoint competition
D) Exploiting market power
75) Substitutes for exploiting economies of scope in diversification include
A) growing and developing independent businesses within a diversified firm and vertical
integration.
B) vertical integration and strategic alliances.
C) growing and developing independent businesses within a diversified firm and strategic
alliances.
D) strategic alliances and multipoint competition.
76) Which of the following statements regarding the rarity of diversification is accurate?
A) If only a few competing firms have exploited a particular economy of scope, that economy of
scope can be rare.
B) A particular economy of scope can only be rare if no other firms are exploiting that economy
of scope.
C) A particular economy of scope can be rare even if many other firms are exploiting that
economy of scope.
D) If only a few competing firms have exploited a particular economy of scope, that economy of
scope can be rare but only if the firm is pursuing unrelated diversification.
77) Which of the following is a less costly-to-duplicate economies of scope?
A) Core competencies
B) Internal capital allocation
C) Employee compensation
D) Exploiting market power
78) Which of the following is an example of a costly-to-duplicate economies of scope?
A) Employee compensation
B) Core competencies
C) Shared activities
D) Risk reduction
79) ________ is an example of a less costly-to-duplicate economies of scope.
A) Tax advantages
B) Core competencies
C) Internal capital allocation
D) Multipoint competition
80) ________ are substitutes for exploiting economies of scope in diversification.
A) Tax havens
B) Tax shelters
C) Tax freedom
D) Strategic alliances
81) In 2001, Peach Computers’ diversification strategy was best characterized as
A) related-linked diversification.
B) dominant-business diversification.
C) single-business diversification.
D) related-constrained diversification.
82) By 2003, Peach Computers’ diversification strategy was best characterized as
A) unrelated diversification.
B) related-constrained diversification.
C) related-linked diversification.
D) dominant-business diversification.
83) Which type of economies of scope is Peach Computers experiencing between its units?
A) Shared activities
B) Core competencies
C) Multipoint competition
D) Tax advantages
84) One of the limits of the economies of scope that Peach Computers is leveraging in its
diversification strategy is
A) they may limit the ability of a particular business to meet specific customers’ needs.
B) they are significantly affected by the way a diversified firm is organized.
C) they are not tangible and may be reflected only in the shared knowledge, experience and
wisdom across businesses.
D) the level and type of diversification that a firm pursues can affect the efficiency of this
allocation process.
85) If one of the reasons that Peach Computers entered into the electronics industry was to offset
weakness in the computer industry because when the computer industry was weak the electronics
industry was strong, and vice-a-versa, Peach Computers would be pursuing which economy of
scope?
A) Core competencies
B) Multipoint competition
C) Tax advantages
D) Risk reduction
86) If, when Peach Computers introduced its PeachPit in 2001, the company used its profits in
the computer industry to subsidize its operations in the electronics industry and used this subsidy
to sell the PeachPit for a price that was less than the cost of producing and selling the MP3
players, this would be an example of
A) mutual forbearance.
B) escalation of commitment.
C) predatory pricing.
D) multipoint competition.
87) Peach Computers’ equity holders, its employees, suppliers and customers along with all of
those groups and individuals who have an interest in how Peach Computers performs are referred
to as
A) focal groups.
B) stakeholders.
C) supporters.
D) stockholders.
88) If no other firm in the computer industry were using a diversification strategy similar to
Peach Computers’, this diversification strategy could be said to be
A) rare and costly to duplicate.
B) rare and less costly to duplicate.
C) common but costly to duplicate.
D) common and less costly to duplicate.
89) In 2001, if Peach Computers did not want to employ a diversification strategy to enter the
personal electronics industry, it could use which substitute for diversification?
A) Backward vertical integration
B) Product differentiation
C) Strategic alliances
D) Forward vertical integration
90) If Peach Computers were looking to getting into the business of making telephones, its
diversification would be called
A) related-linked.
B) related-constrained.
C) related-corporate.
D) unrelated.
91) Discuss when a firm is implementing a corporate diversification strategy and differentiate
between a product diversification strategy, a geographic market diversification strategy and a
product-market diversification strategy.
92) Identify and distinguish between the five different levels of diversification discussed in
Chapter 7.
93) Specify the two conditions that a corporate diversification strategy must meet in order to
create economic value.
94) Define the concept of economies of scope, discuss when they are valuable and identify and
differentiate between four of the eight potential economies of scope a diversified firm might try
to exploit.
95) Discuss shared activities as a potential source of economies of scope for diversified firms
and identify the potential benefits and limits of activity sharing.
96) Identify and discuss the two economies of scope that do not have the potential for generating
positive returns for a firm’s outside equity investors.
97) Discuss the conditions under which a firm’s diversification strategy will be rare.
98) Identify which economies of scope are more likely to be subject to low-cost imitation and
which are less likely to be subject to low-cost imitation and discuss why each is either costly or
less costly to duplicate.
99) Identify two potential substitutes for corporate diversification and discuss how each can
provide benefits similar to corporate diversification.
100) Explain how strategic alliances are a substitute for exploiting economies of scope in
diversification.