978-1305500891 Chapter 11 Solution Manual

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END-OF-CHAPTER GUIDE

*Review Questions and Answers

*Critical Discussion Questions and Answers

*Global Action

*Closing Case

REVIEW QUESTIONS AND ANSWERS

1. Explain the differences between tacit and explicit collusion.

Tacit collusion: firms indirectly coordinating actions by signaling their intention to

2. Describe the five factors that make an industry particularly conducive to collusion.

Five factors make an industry conducive to collusion.

Having few firms (high concentration) in the industry makes it easier to organize

collusion.

Existence of an industry price leader helps to maintain the order and stability

3. Some countries’ competition and antitrust policies are pro-competition and pro-consumer,

whereas other countries’ policies are pro-incumbent and pro-producer. How do they

differ?

In the United States, fairness means equal opportunities for incumbents and new

entrants. It is “unfair” for incumbents to fix prices and raise entry barriers to shut out

new entrants. However, in Japan, fairness means the opposite; that is, incumbents that

4. Suppose in Country A, a widget firm has absorbed all of its fixed cost (cost that does not

change with the level of output such as rent), and now all additional cost is only variable cost

(cost that does vary with the level of output such as raw materials). In Country A, the price was

Chapter 11: Managing Global Competitive Dynamics

enough to cover both its fixed cost of $100 and variable cost of $10 and provide an additional

profit of $10. It sold only one for a price of $120. Suppose the widget firm received an order

from Country B for one widget and indicated that the buyer in Country B would pay $20–enough

to cover the variable cost of $10 and provide a $10 profit. If the widget firm agrees, it will have

total costs for the two widgets (one sold in Country A and one in Country B) of $100 fixed cost

plus $20 variable cost–that is an average total cost for two units of $60. If it sells the widget to

Country B for $20, will it be selling it above or below cost? Explain.

This question illustrates why trade disputes regarding “dumping” occur. If one is using

5. Use your own examples to identify how resources and capabilities affect competitive

dynamics.

The important thing is not so much the answer as the extent to which the student

6. ON CULTURE: How does a firm’s corporate culture affect its ability to engage in

competitive actions?

Some firms are better organized for competitive actions, such as stealth attacks and have

7. Name and describe three drivers for counterattacks.

Attackers need to be aware of the three drivers for counterattacks: (1) awareness, (2)

motivation, and (3) capabilities. Awareness is a prerequisite for any counterattack. If an

8. ON ETHICS: Military terminology and strategy are often used in dealing with global

competitors. In your opinion, is there any risk in doing so? Is there a risk in failing to do

so? Why?

9. Under what conditions may a firm assume a defender strategy?

In some industries, the pressures to globalize are relatively low, and local firms’ strengths

10. Under what conditions may a firm adopt an extender strategy?

Chapter 11: Managing Global Competitive Dynamics

In some industries, the pressures to globalize are relatively low, and local firms’ strengths

11. What criteria may induce a firm to choose a dodger strategy over a contender strategy,

and vice versa?

12. ON ETHICS: Do you support or oppose antidumping restrictions? Why?

The important thing is not so much the answer as the extent to which the student

13. ON ETHICS: Describe four arguments that managers may make regarding antitrust law.



First, antitrust laws were often created in response to the old realities of mostly

domestic competition—the year 1890 for the Sherman Act is not a typo of 1990.



Second, the very actions accused of being “anticompetitive” may actually be highly

“competitive” or “hypercompetitive.” In the 1990s, the hypercompetitive Microsoft



Third, U.S. antitrust laws create strategic confusion. Obviously, confused firms are

not likely to be aggressive or successful.



Finally, U.S. antitrust laws may be unfair because these laws discriminate against

U.S. firms. In 1983, if GM and Ford had proposed to jointly manufacture cars,

14. Using Peng Atlas Map 3.1, in your option would it be easier or more difficult to apply

competitive dynamics in those countries that are at the bottom?

Differences of opinion should be encouraged but it should be noted that none of those

countries are among the most developed and some have economic systems which are

15. As part of your firm’s strategy to gain competitive advantage, it wants to cut prices by

looking for alternate locations in which to manufacture and market its products. You are

Chapter 11: Managing Global Competitive Dynamics

part of a committee attempting to select a new manufacturing location. What information

in PengAtlas Map 3.3 or 3.4 will be most relevant? Based on your choice, what will your

committee recommend and why?

Many students will automatically assume that the firm should pick one of the ten poorest

countries and base that on the assumption that their costs would be less and that locating

CRITICAL DISCUSSION QUESTIONS AND ANSWERS

1. ON ETHICS: As a CEO, you feel that the price war in your industry is killing profits for

all firms. However, you have been warned by corporate lawyers not to openly discuss

pricing with rivals, whom you know personally because you went to school with them.

How would you signal your intentions?

This is a question in which the answer is not as important as the thought process and the

2. ON ETHICS: As a CEO, you are concerned that your firm and the industry in your

country are being devastated by foreign imports. Trade lawyers suggest filing an

antidumping case against leading foreign rivals and assure you a win. Would you file an

antidumping case? Why or why not?

This is a question in which the answer is not as important as the thought process and the

ON ETHICS: As part of a feint attack, your firm (firm A) announces that in the next year, it

intends to enter country X, where the competitor (firm B) is strong. Your firm’s real intention is

to march into country Y, whereby B is weak. There is actually no plan to enter X. However, in

the process of trying to “fool” B, customers, suppliers, investors, and the media are also being

intentionally misled. What are the ethical dilemmas here? Do the pros of this action outweigh its

cons?

This is a question in which the answer is not as important as the thought process and the

ability to clearly articulate. However, if firm A has explicitly announced that it intends to

GLOBAL ACTION

1. Your home country market (the United States) is being challenged by price wars launched

by your top three foreign competitors from three countries that do not share the same

Chapter 11: Managing Global Competitive Dynamics

US-style antitrust tradition. Prepare a report outlining your top five strategic choices on

how to respond to such challenges, discussing the pros and cons of each choice. Then

identify, recommend, and defend your top choice.

Exercise 1 Answers

One resource which can be used is “Guide to Antitrust Laws” on the Federal Trade

Commission (FTC) website. This website can be found by entering the search term

“Federal Trade Commission” at the globalEDGE™ Resource Desk search box located at

2. You are an executive assistant for the CEO of Mediterranean Shipping Company (MSC)

of Switzerland. Two competitors—Maersk of Denmark and CMA CGM of France—have

asked your CEO to jointly discuss the possibility of setting up an alliance that is called

the P3 Alliance. Citing the blessing from governments on global airline alliances such as

One World, Sky Team, and Star Alliance, executives from Maersk and CMA CGM

believe that the relevant governments for the P3 Alliance are likely to be supportive.

Having made up his mind to participate in the negotiations, your CEO has asked you to

prepare a report on the do’s and don’ts of such discussions. He has also requested that

you accompany him to the discussions. What else do you need to prepare in addition to

the report?

Exercise 2 Answers

One resource which can be used is “The Industry Handbook: The Airline Industry” at

Investopedia. This website can be found by entering the search term “airline industry” at

CLOSING CASE DISCUSSION GUIDE AND ANSWERS

EMERGING MARKETS: How Firms from Emerging Economies Fight Back

1. Why are firms from emerging economies so eager to expand from their home markets?

The arrival of multinational enterprises (MNEs) from developed economies puts an

enormous amount of pressure on local firms and serves the useful purpose of

Chapter 11: Managing Global Competitive Dynamics

2. What distinguishes firm-specific resources and capabilities of some of the winning firms

from emerging economies?

3. ON ETHICS: Are the institution-based barriers in some developed economies fair or

unfair?

The important thing is not so much the answer as the extent to which the student

4. Pick an established rival of a firm named in this case—for example, Steinway for Pearl

River or Avon for Natura. Do some research to understand their resource similarity and

market commonality between the pair of rivals (such as Avon versus Natura). Using the

competitor analysis framework in Figure 11.3, predict what will happen to their

competition in the home country of the established rival, the home country of the

emerging challenger, and another third-country market.