Chapter 11 Competitive Strategy

Chapter 11: Competitive Strategy Multiple Choice Questions 1. A set of companies that compete in similar ways with similar business models pursuing similar sets of customers is called a _____. A. strategic group B. joint venture C. supplier group D. strategic alliance Answer: A Level of Difficulty: Easy Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Knowledge AACSB: Analytical thinking 2. Marcel, the owner and president of a three-star hotel, believes that only competitors within the same strategic group need to be analyzed. Nina, the chief of client services, believes that other groups must also be considered in order to stay ahead of competition. Which of the following situations strengthens Nina’s argument? A. A new café on the same lane as Marcel’s hotel is being frequented by business people. B. A grocery store close to Marcel’s hotel has all the ingredients required for her restaurant. C. The customers of Marcel's hotel are class conscious and do not prefer routine services available elsewhere. D. The hotel owned by Marcel enjoys monopoly as it is located in a suburb with few similar service providers. Answer: A Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Analyze AACSB: Reflective thinking 3. Lucy, a researcher, wants to identify the main differences in different healthcare firms competing to deliver value. She studies the relative price, product line breadth, and geographic placement to identify the differences. Which of the following is Lucy likely to rely on to identify how the firms compete? A. A strategic group map B. A workflow analysis C. An employee survey D. A quality control measure Answer: A Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Application AACSB: Application of knowledge 4. Which of the following statements is true about strategic groups? A. They identify allies in business groups. B. The firms within each group are unlikely to target the same customer segment. C. The firms within each group compete in similar ways. D. They exclude rivals who share a similar business model. Answer: C Level of Difficulty: Moderate Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Comprehension AACSB: Analytical thinking 5. Alex, the CEO of a manufacturing company, is asked by the board if he will consider switching strategic groups. However, Alex thinks it might not be advisable. Which of the following statements strengthens Alex’s belief? A. Marketers will be more able to identify rivals if they switch to another strategic group. B. The customers of his company are not brand conscious and loyal. C. His company has tough competition from firms outside their strategic group. D. His company has rigid systems, which have been in place for many years Answer: D Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Analyze AACSB: Reflective thinking 6. Fuchsia Inc., a cosmetics manufacturer, decides to change how it competes in the market. With this objective in mind, it decides to target a different market segment with its existing set of products. However, Fuchsia takes a long time to reconfigure its activities and systems to meet these changes. Which of the following is being exemplified in this case? A. Mobility barrier B. Product differentiation C. Customer bias D. Tasks disintermediation Answer: A Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Application AACSB: Application of knowledge 7. Ryan, a researcher, wants to indicate whether companies in one group appeal to the primary markets of another group. Which of the following is likely to help Ryan in his research? A. Mobility barriers B. Quality analyses C. Strategic group maps D. Product measurements Answer: C Level of Difficulty: Moderate Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Comprehension AACSB: Analytical thinking 8. Zara, a research analyst, is studying the business decisions of some restaurant owners. During the data analysis stage, she employs a strategic canvas. Which of the following is likely to be her primary reason to employ this tool? A. To understand the pricing strategy used for different dishes within each restaurant B. To study the differences in the ways the restaurants compete with each other C. To identify the combined target audience of strategic groups as a whole D. To observe the similarities in the employees' views of their respective organizations Answer: B Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Application AACSB: Application of knowledge 9. A research firm creates a graph to represent how companies compete with each other. The Xaxis represents the competitive offerings and Y-axis represents performance. Which of the following is does the graph represent? A. A strategy canvas B. A structural analysis C. A strategic group map D. A workflow analysis Answer: A Level of Difficulty: Hard Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Application AACSB: Application of knowledge 10. Copper Enterprises manufactures industrial machinery. It decides to identify the characteristics of a new firm that offers the same products as Copper. In order to assess how it might respond in the face of rival actions, Copper must develop a(n) _____. A. organizational chart B. structural graph C. strategic application D. competitor response profile Answer: D Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 11. An organization wants to compete at an international level. It sets the company objectives and the assumptions to reinforce the objectives. Which of the following is being exemplified in this case? A. Organizational chart B. Structural graph C. Strategic application D. Competitor response profile Answer: D Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 12. A research institute plans to build a competitor response profile for a study. Which of the following is the first step to build such a profile? A. Identifying the assumptions B. Studying the strategic ideas of competitors C. Creating a structural chart D. Focusing on productivity Answer: A Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 13. An organization studies the strategies of its competitors closely. At the current stage, it studies factors such as geographic location, characteristics of business model, services provided, and time management. At this stage, the organization is identifying the competitor’s _____. A. resources and capabilities B. objectives C. organizational structure D. goals and achievements Answer: A Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 14. Gia Inc., a healthcare company, aims to create a competitor response profile. It has identified its objectives and assumptions. The next step is to _____. A. identify the competitors’ resources and capabilities B. study the price range of its own products lines C. create a structural chart D. focus on productivity Answer: A Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 15. An airline service provider watches its rivals closely. It studies the potential for reliable, timely, and service-oriented international travel offered by its competitors. In this case, the firm is focusing on the competitors' _____. A. resources and capabilities B. objectives C. organizational structure D. market risks Answer: A Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 16. The word "theory" in game theory refers to _____. A. the strategic interaction among competitors B. a set of predictions C. a competitor’s objectives D. the resources and capabilities of a competitor Answer: B Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Knowledge AACSB: Analytical thinking 17. An organization has few rivals in the industry. These rivals are considering such moves as price changes, capacity adjustments, or new product features. Which of the following will help the organization predict the strategic actions most likely to be taken by its rivals? A. Structural analysis B. Game theory C. Strategic canvas D. Study of productivity Answer: B Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 18. A simple game has two players; each player has two choices. Assume that the players make their moves at the same time and they only play the game once. Which of the following is exemplified in this case? A. Linear change game B. Infinitely repeated game C. Consecutive shift game D. Simultaneous move game Answer: D Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 19. Nash equilibrium is represented by a set of moves in a game that: A. improves the firms’ payoffs by changing the choice. B. sustains an incentive to defect by changing the choice. C. minimizes each firm’s input based on the number of rivals. D. maximizes each firm’s payoff given the choices of rivals. Answer: D Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 20. An organization wants to maximize its payoff given the choices of rivals and remove incentive to defect in the sense that no organization can improve its payoffs by changing its choice. Which of the following concepts will help the organization create such a structure? A. D’Aveni’s hypercompetition B. Strategic group map C. Strategic canvas D. Nash equilibrium Answer: D Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 21. Which of the following statements is true about the Nash equilibrium? A. It is the solution concept used in games that are played forever. B. It reduces the possibility of compromise. C. It is the solution concept used to predict the outcome of competitive interaction. D. It is a set of moves in a game that simultaneously minimize each firm’s payoff. Answer: C Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 22. A researcher wants to study an organization that strives at achieving the best outcome and ensures that the outcome is stable. In this case, the organization has developed the concept of _____. A. D’Aveni’s hypercompetition B. infinitely repeated game C. strategic canvas D. Nash equilibrium Answer: D Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 23. Most companies are in competition with their rivals each and every day, month, or year with no certain end date. This is an example of _____. A. a parallel game B. an infinitely repeated game C. a simultaneous game D. the Nash equilibrium Answer: B Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 24. Which of the following statements is true about an infinitely repeated game? A. In this game, players always believe there is a future. B. In this game, each player’s best choice is to implicate the rivals. C. It is the solution concept used to predict the outcome of competitive interactions. D. It removes incentive to defect in the sense that no firm can improve its payoffs. Answer: A Level of Difficulty: Moderate Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Comprehension AACSB: Analytical thinking 25. An organization watches it rivals closely and chooses actions that mimic what its rivals are doing. This is an example of a _____. A. structural analysis B. tit-for-tat strategy C. parallel game D. simultaneous game Answer: B Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 26. A manufacturing firm maintains its price unless it observes its rival choosing to lower price. Any time the rival lowers price, the firm responds by lowering its own price. This is an example of a _____. A. structural analysis B. tit-for-tat strategy C. strategic canvas D. complementary game Answer: B Level of Difficulty: Hard Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Application AACSB: Application of knowledge 27. A company wants to form the foundation of a competitive strategy. It decides to assess its strengths and weaknesses. In this case, the company should first assess its _____. A. resources and capabilities B. organizational structure C. structural chart D. competitors’ strategies Answer: A Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 28. An insurance firm decides to recognize its resources and capabilities. It observes that a few resources and capabilities deliver unique value, but others are subjected to easy imitation. In this case, the organization is _____. A. learning its strengths and weaknesses B. bringing strength against weakness C. neutralizing vulnerability D. developing strategies that cannot be easily copied Answer: A Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 29. Noah, a researcher, identifies various resources and capabilities of an organization that are subjected to rapid obsolescence, easy imitation, and high cost not recouped by value. In this case, Noah is: A. learning the organization’s weaknesses. B. bringing strength against weakness. C. neutralizing vulnerability. D. developing strategies that cannot be easily copied. Answer: A Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 30. Zeal Inc., an electronic goods manufacturer, launches an air conditioner that contributes to the downfall of Ochre Corp., a company struggling to stay in the market amidst bankruptcy. Which of the following concepts is exemplified in this scenario? A. Knowing the strengths and weaknesses B. Bringing strength against weakness C. Neutralizing vulnerability D. Developing strategies that cannot be easily copied . eve op g st ateg es t at ca ot be eas y cop ed Answer: B Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 31. Laser Tech., a leading printing firm, launches a new printing technique to meet the changing demands of the market. Blue Corp., its prime competitor, had been rigid in adapting to the changes in the market and is put out of business because of the launch of the new technique by Laser. Which of the following is exemplified in this case? A. Knowing the strengths and weaknesses B. Bringing strength against weakness C. Neutralizing vulnerability D. Developing strategies that cannot be easily copied Answer: B Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 32. Peach Line Inc., manufacturers of furniture, identifies that its choice of suppliers is its weakness and makes this irrelevant by standardizing the production process irrespective of the source of raw materials. This way, its choice of suppliers does not become the target of competitors. Which of the following is exemplified in this case? A. Knowing the strengths and weaknesses B. Bringing strength against weakness C. Neutralizing vulnerability D. Developing strategies that cannot be easily copied Answer: C Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 33. A restaurant chain serves common dishes that are also available in other restaurants. As it does not offer any unique dishes, it introduces other options to customize the products such as the choice of cheese, bread, and spices. It also promises a short waiting time for take-away and free home deliveries. In this case, the restaurant chain is _____. A. learning its strengths and weaknesses B. bringing strength against weakness C. neutralizing vulnerability D. developing strategies that cannot be easily copied Answer: C Level of Difficulty: Hard Section reference: Principles of Competitive Strategy Learning Objective: 11.3 Bloom’s: Application AACSB: Application of knowledge 34. A well-established manufacturing firm decides to set the market price of a product just low enough so that a new firm cannot pay the cost of entering a market and eventually be profitable. Which of the following is exemplified in this case? A. A tit-for-tat strategy B. An entry barrier C. A strategic canvas D. The Nash equilibrium Answer: B Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 35. Plateus Inc., a food manufacturing company, has brand equity worth a billion dollars that has been accomplished through consistent delivery of quality products and long-term advertising. These strategies make entering the industry a formidable task for any other firm. Which of the following is exemplified in this case? A. An entry barrier B. A tit-for-tat strategy C. A complementary strategy D. The Nash equilibrium Answer: A Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 36. Walden Inc., a well-established finance company, hires the most valuable scientists and experts. Hence, start-ups and other small businesses find it difficult to compete with Walden. Which of the following is exemplified in this case? A. A tit-for-tat strategy B. A limited competitive access to scarce resources C. A parallel game strategy D. The Nash equilibrium Answer: B Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 37. A successful chain of restaurants is successful in securing the most advantageous geographic positions. This effectively bars competition. Which of the following is exemplified in this case? A. A tit-for-tat strategy B. A limited competitive access to scarce resources C. A low-end disruptive innovation D. The Nash equilibrium Answer: B Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 38. An insurance company has procured all the capacity available in its market for $100 million. Thus, the company has placed a lock on the resources that other firms may require to develop their products. Which of the following is being exemplified in this case? A. A tit-for-tat strategy B. A limited competitive access to scarce resources C. A low-end disruptive innovation D. The Nash equilibrium Answer: B Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 39. An automobile manufacturing firm has dominated its market by consistently releasing automobile upgrades and enhancements. Which of the following is being exemplified in this case? A. Implementing a tit-for-tat strategy B. Limiting competitive access to scarce resources C. Introducing new products frequently D. Representing the Nash equilibrium Answer: C Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge 40. Lieme Inc. and Pola Inc. are oligopolistic rivals in the automobile industry. Lieme has staked out a price position that is slightly higher than that of Pola. Even so, if Pola raises its price, Lieme would too, in order to maintain the differential. Which of the following is being exemplified in this case? A. Implementing an entry barrier B. Limiting competitive access to scarce resources C. Introducing new products frequently D. Monitoring and mimicking rival behaviour Answer: D Level of Difficulty: Hard Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Application AACSB: Application of knowledge Fill in the blanks 41. An analysis that breaks down the structure of a market or industry into its constituent groups is called a(n) _____. Answer: strategic group analysis Level of Difficulty: Easy Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Knowledge AACSB: Analytical thinking 42. Any factor that limits the ability of a company to move between strategic groups is called a(n) _____. Answer: barrier to mobility Level of Difficulty: Easy Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Knowledge AACSB: Analytical thinking 43. A _____ profile identifies characteristics of a competitor in order to assess how it might respond in the face of rival actions. Answer: competitor response Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Knowledge AACSB: Analytical thinking 44. In game theory, a set of actions that are always played no matter what a rival chooses to do is referred to as the _____. Answer: dominant strategy Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.2 Analyze a company’s competitors to identify the likely ways they will respond to a company’s strategic moves using a competitor response profile. Bloom’s: Knowledge AACSB: Analytical thinking 45. Any factor that increases the costs, lowers the profit margins, or limits the market share of entrants to a market is called a(n) _____. Answer: entry barrier Level of Difficulty: Easy Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Knowledge AACSB: Analytical thinking Essays 46. Write a note on strategic groups and mobility barriers. Answer: An analysis that breaks down the structure of a market or industry into its constituent groups is called a strategic group analysis. Visualizing this group structure is an important component of competitive analysis because it identifies the major arenas of competition and who competes directly with whom. Companies find that switching strategic groups is difficult once they have built a history in one. The reason is that companies in specific strategic groups choose particular ways to configure their activities and these activity systems do not change quickly or easily. This creates a barrier to mobility between groups. Once a firm is in a particular group, it is not mobile and can’t simply leap to a different group. Level of Difficulty: Easy Section reference: Understanding the Competitive Landscape Learning Objective: 11.1 Bloom’s: Knowledge AACSB: Analytical thinking 47. Briefly describe the game theory. Answer: The word "game" in game theory refers to strategic interaction among competitors and the word "theory" refers to a set of predictions about how competitors play games. In most games, rivals are expected to make moves that deliver the greatest profit, called a pay-off. Firms typically make their choices with this objective in mind. But rivals have choices, too. With both firms facing choices, each must consider what the other will do in order to reach their own best outcome. This logic of anticipating what is in a rival’s best profit interest before making your own move is central in game theory. Game theory is especially useful in contexts in which only a few rivals exist and these rivals are considering such moves as price changes, capacity adjustments, or new product features, and are wondering how competitors are likely to respond. Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Knowledge AACSB: Analytical thinking 48. Briefly describe the Nash equilibrium. Answer: John Nash, a famous game theorist, developed an equilibrium concept in games that has come to be known as the Nash equilibrium. The Nash equilibrium is represented by a set of moves in a game that: (1) maximizes each firm’s payoff given the choices of rivals and (2) removes incentive to defect in the sense that no player can improve his payoffs by changing his choice. Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.2 Bloom’s: Knowledge AACSB: Analytical thinking 49. What are the principles that strengthen a company’s ability to compete? Answer: The following principles, when applied, strengthen a company’s ability to compete:  Know your strengths and weaknesses  Bring strength against weakness  Protect and neutralize vulnerabilities  Develop strategies that cannot be easily imitated or copied (go where the competitor is not) Level of Difficulty: Easy Section reference: Evaluating the Competition Learning Objective: 11.3 Bloom’s: Knowledge AACSB: Analytical thinking 50. Briefly describe competition under monopoly. Answer: Monopoly is a market of one firm or one highly dominant firm. The basic strategic objective of a monopolist is to reinforce its monopoly. It does so in several ways, such as by: (1) raising entry barriers, (2) limiting competitive access to scarce resources, (3) innovating and patenting, and (4) introducing new products frequently. If a monopolist has new competitors threatening to enter its market, these are among the competitive actions they should consider taking as a response. On the flipside, the competitor attempting to enter the monopolist’s market can expect these kinds of retaliatory actions from the monopolist. Level of Difficulty: Easy Section reference: Competitive Actions for Different Market Environments Learning Objective: 11.4 Bloom’s: Knowledge AACSB: Analytical thinking