Test Bank, Modern Competitive Strategy, 4th Edition

Chapter 3, Industry Analysis

Multiple Choice

1. In which of these three sectors of the economy - manufacturing, services,

transportation - is the effect of business strategy on performance the smallest?
a. manufacturing
b. services
c. transportation
d. all the same

2. Which of the following industry forces is not one of Porter’s five forces?
a. rivalry
b. supplier power
c. complements
d. substitutes

3. Which of the following conditions is not necessary for perfect competition?

a. there are many competitors
b. exit is relatively costless
c. all firms have the same cost structure
d. all firms are the same age

4. How would a firm reduce the power of one of its buyers?

a. Decrease the percentage of product sold to it.
b. Reduce its strategic importance to the firm.
c. Increase the strategic importance of the firm to it.
d. All of the above.

5. Which of the following best describes the determinants of industry concentration?

a. the ratio of market size to the minimum set up costs required to compete
b. the level of incumbent sunk cost investment in activities that increase value to the
customer
c. both a and b
d. neither a nor b

6. Which of the following represents a good example of complementary products?

a. cars and gasoline stations
b. airlines and flight attendants
c. snow skis and snowboards
d. weak antitrust regulation and lawyers

7. Which of the following helps to explain why stronger industry concentration is often
associated with a higher level of profitability?
a. large firms tend to be less efficient
b. collusion activity among large firms
c. large firms have more market power
d. all of the above.

8. According to Ghemawat, which of the following are key conditions for tacit collusion:
a. strategic complementarity
b. repeated interaction
c. mutual familiarity
d. all of the above

9. Which of the following is a common condition for the failure of a cartel?

a. an inability to penalize cheating
b. an inability to prevent entry into the industry
c. bargaining problems among cartel members
d. all of the above

10. Price competition within an oligopoly of firms with identical products drives profits
to:
a. about 15% return on equity
b. zero
c. about 5 percent return on equity
d. about 10 % return on equity

True/False

1. Building barriers to entry is usually costless. f

2. The baseline condition for buyer power is the availability of comparable, competing
products. t

3. Suppliers set the baseline for a firm’s costs. t

4. The bargaining power of a supplier increases as it sells a higher percentage of its

goods to a firm. F

5. Strong substitutes can set a limit on the prices firms may charge for their products or
services. t
6. Technological similarity is necessary to distinguish an industry from substitutes. t

7. Powerful substitutes lower the value required to compete. F

8. Reducing prices is one way to increase the barriers to entry. t

9. Cooperation between the firm and its suppliers can lower supplier costs with a
comparable drop in value. f

10. Cooperation between a firm and its buyers can lower firm costs and reduce buyer
value. f