67) To the extent that a strategic alliance is based on ________ relations, it will make the
alliances costly to imitate.
A) socially complex
B) tacit collusion
C) explicit collusion
D) moral hazard
68) Two possible substitutes for strategic alliances include
A) going it alone and tacit collision.
B) going it alone and acquisitions.
C) acquisitions and explicit collusion.
D) explicit collusion and tacit collusion.
69) Firms ________ when they attempt to develop all the resources and capabilities they need to
exploit market opportunities and neutralize market threats by themselves.
A) engage in tacit collusion
B) form joint ventures
C) go it alone
D) engage in explicit collusion
70) Alliances will be preferred to going it alone when
A) the level of transaction-specific investments required to complete an exchange is low.
B) there are no transaction-specific investments required to complete an exchange is low.
C) when there is low uncertainty about the future value of an exchange.
D) the level of transaction-specific investments required to complete an exchange is moderate.
71) ________ theory suggests that under conditions of high uncertainty, firms may be unwilling
to commit to a particular course of action by engaging in an exchange with a firm and will
choose, instead, the strategic flexibility associated with alliances.
A) Capabilities
B) Real options
C) Transaction cost economics
D) Resource-based
72) Alliances will be preferred to acquisitions when
A) alliances limit a firm’s flexibility under conditions of high uncertainty.
B) there is minimal unwanted organizational “baggage” in an acquired firm.
C) there are legal constraints on acquisitions.
D) the value of a firm’s resources and capabilities does not depend on its independence.
73) An example of a contractual clause that deals with operating issues would be a
A) noncompete clause.
B) minority protection clause.
C) put options clause.
D) termination clause.
74) All of the following are methods firms can use to reduce the threat of cheating in strategic
alliances except
A) contracts.
B) equity investments.
C) joint ventures.
D) tacit collusion.
75) Which of the following is a limitation of the reputational control of cheating in a strategic
alliance?
A) Subtle cheating in an alliance is likely to become public knowledge.
B) Even if one firm is clearly cheating in an alliance, the other firm may not be sufficiently tied
into a network of firms to make this information public.
C) The effect of a tarnished reputation forecloses future opportunities for a firm and it helps
reduce the current losses of the firm that was cheated.
D) The reputation of the firm that was impacted by the cheating may be impacted as significantly
as the firm that committed the cheating.
76) When the probability of cheating in a cooperative relationship is greatest, a(n) ________ is
the preferred form of cooperation.
A) equity agreement
B) licensing agreement
C) joint venture
D) distribution agreement
77) ________ may enable partners to explore exchange opportunities that they could not explore
if only legal and economic organizing mechanisms were in place.
A) Trust
B) Joint ventures
C) Reputational effects
D) Equity investments
78) While it is often the case that there will be important information asymmetries between firms
in an alliance, these asymmetries are likely to be ________ when alliances partners come from
different countries.
A) much less
B) about the same as
C) much greater
D) marginally greater
79) ________ collusion exists when firms coordinate their production and pricing decisions not
by directly communicating with each other but by exchanging signals with other firms about
their intent to cooperate.
A) Explicit
B) Tacit
C) Real
D) Virtual
80) ________ collusion exists when firms directly communicate with each other to coordinate
their levels of production, their prices, and so forth.
A) Tacit
B) Virtual
C) Real
D) Explicit
81) eBay’s agreement with the U.S. Postal Service is most accurately classified as a(n)
A) joint venture.
B) equity agreement.
C) licensing agreement.
D) nonequity agreement.
82) eBay’s agreement with MBNA is most accurately characterized as a(n)
A) supply agreement.
B) licensing agreement.
C) equity alliance.
D) joint venture.
83) eBay’s agreement with the Korean online auction company is best characterized as a(n)
A) licensing agreement.
B) joint venture.
C) equity alliance.
D) distribution agreement.
84) eBay’s former agreement with ecorp is best characterized as a(n)
A) joint venture.
B) equity alliance.
C) licensing agreement.
D) nonequity alliance.
85) If eBay’s agreements with their Korean and Australian partners were intended to increase the
number of buyers and sellers and thereby increase the value of eBay’s online auction services for
every eBay user, this would imply that the online auction industry is an example of a ________
industry.
A) declining
B) network
C) commodity
D) mature
86) If eBay entered the cooperative with its Australian partner for the purpose of testing the
attractiveness of the Australian and New Zealand auction industries prior to making a more
significant investment in these industries, this would be an example of
A) transaction cost economics.
B) tacit collusion.
C) explicit collusion.
D) real options.
87) If, prior to entering the cooperative agreement with eBay, eBay’s Korean partner stated that it
had the technological capabilities to facilitate eBay’s Korean auction business when, in fact, the
Korean company did not have these capabilities, this would be an example of
A) adverse selection.
B) explicit collusion.
C) moral hazard.
D) holdup.
88) If eBay’s Australian partner agreed to provide marketing and technological skills to help
eBay compete in the Australian and New Zealand auction industries but provided skills that were
significantly lower than promised, this would be an example of
A) holdup.
B) moral hazard.
C) averse selection.
D) tacit collusion.
89) eBay’s agreement with ________ is the most likely to be susceptible to holdup.
A) the Australian partner
B) the Korean partner
C) MBNA
D) the U.S. Postal Service
90) Which of the following reasons helps explain why eBay may have preferred to enter into an
alliance to enter the Korean online auction industry rather than going it alone?
A) eBay’s Korean partner possesses capabilities that are valuable and rare but not costly to
imitate.
B) The level of transaction-specific investments required to enter the Korean online auction
industry is low.
C) There is little uncertainty about the future of the Korean online auction industry.
D) The level of transaction-specific investments required to enter the Korean online auction
industry is moderate.
91) Define a strategic alliance and identify and differentiate between three broad categories of
strategic alliances.
92) Identify and discuss the three ways alliances can create economic value by helping firms
improve the performance of their current operations.
93) Discuss the concept of a learning race and identify three reasons why firms in an alliance
may differ in the rate they learn from each other.
94) Define the three fundamental forms of cheating in strategic alliances and discuss the short-
and long-term implications of cheating in a strategic alliance.
95) Identify the conditions under which a strategic alliance can be rare and discuss the role that
complementary resources can play in the rarity of strategic alliances.
96) Discuss when strategic alliances may be costly to directly duplicate.
97) Discuss when firms go it alone and identify three conditions under which alliances will be
preferred to going it alone and when going it alone is not an attractive substitute for an alliance.
22
98) Discuss to what extent acquisitions can be a substitute for alliances and identify four
conditions under which alliances will be preferred to acquisitions.
99) Describe five tools that firms can use to reduce the threat of cheating in strategic alliances.
Answer: These five tools firms can use to reduce the threat of cheating in strategic alliances are
contracts, equity investments, firm reputations, joint ventures, and trust.
Contracts. One way to avoid cheating in strategic alliances is for parties to an alliance to
anticipate the ways in which cheating may occur (including adverse selection, moral hazard, and
holdup) and to write explicit contracts that define legal liability if cheating does occur. Writing
these contracts, together with the close monitoring of contractual compliance and the threat of
legal sanctions, can reduce the probability of cheating.
Equity investments. The effectiveness of contracts can be enhanced by having partners in an
alliance make equity investments in each other so that if one of the partners to an alliance cheats,
they will be negatively impacted through their equity investment in their partner.
Firm reputations. Information about an alliance partner that has cheated is likely to become
widely known. A firm with a reputation as a cheater is not likely to be able to develop strategic
alliances with other partners in the future, despite any special resources or capabilities that it
might be able to bring to an alliance. In this way, cheating in a current alliance may foreclose
opportunities for developing valuable alliances. For this reason, firms may decide not to cheat in
their current alliances.
Joint ventures. Creating a separate legal entity in which alliance partners invest and from whose
profits they earn returns on their investments reduces some of the risks of cheating in strategic
alliances. When a joint venture is created, the ability of partners to earn returns on their
investments depends on the economic success of the joint venture. Partners in joint ventures have
limited interests in behaving in ways that hurt the performance of the joint venture because such
behaviors end up hurting themselves. Moreover, unlike reputational consequences of cheating,
cheating in a joint venture does not just foreclose future alliance
opportunities, it can hurt the cheating firm in the current period as well.
Trust. Trust, in combination with contracts, can help reduce the threat of cheating. More
important, trust may enable partners to explore exchange opportunities that they could not
explore if only legal and economic organizing mechanisms were in place.
Diff: 2 Page Ref: 267-272
Objective: 9.6
100) What is the connection between strategic alliances and real options?