Economics of Competitive Strategy
Exam Materials
Course Introduction
Economics of Competitive Strategy explores how firms attain and maintain competitive advantage within various market structures. The course examines key economic concepts such as market power, entry and exit barriers, pricing strategies, product differentiation, and the strategic interactions among firms through the lens of game theory. By analyzing case studies and real-world scenarios, students learn to evaluate and formulate strategies that firms use to respond to competitors, adapt to shifting market conditions, and influence industry dynamics. The course also addresses the impact of innovation, regulation, and globalization on strategic decision-making, providing a comprehensive understanding of how economic principles guide business competition.
Recommended Textbook
Economics of Strategy 6th Edition by David Besanko
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14 Chapters
419 Verified Questions
419 Flashcards
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Chapter 1: The Power of Principles: an Historical Perspective
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30 Flashcards
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Sample Questions
Q1) How have late 20 and 21 century communications technologies directly created global markets from products and services?
A) Created paperless communications
B) Created seamless and instantaneous communications
C) Decreased coordination for interfirm alliances
D) Increased worker productivity
E) Unflattened the world
Answer: B
Q2) What caused the market conditions facing the telephone to be uncertain until the 1880's?
A) Patent conflicts
B) Technology problems due to unstable electricity supplies
C) Dissimilar technologies limiting interconnections between cities
D) Different state laws limiting interstate expansion
E) The high cost fo some components needed to manufacture telephones
Answer: A
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Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Which of the following benefits of diversification explains the idea that corporate diversification can provide situations where an acquiring firm determines the stock price for firm they intend to acquire is too low?
A) Use of internal capital markets
B) Economies of scale and scope
C) Economizing on transaction costs
D) Diversifying shareholder portfolios
E) Identifying undervalued firms
Answer: E
Q2) Which of the following is not generally a potential benefit of diversification?
A) Control systems rewarding/penalizing division managers based on business unit objective
B) Economies of scale and scope
C) Economizing on transaction costs
D) Diversifying shareholder portfolios
E) Identifying undervalued firms
Answer: A
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Chapter 3: The Vertical Boundaries of the Firm
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Sample Questions
Q1) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and the market price (bailout market price in the event Dell does not buy)Pm=$22/unit.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit and the deal subsequently falls apart,what is your company's "quasi-rent"?
Answer: $30 million
Q2) Which of the following is not a characteristic of a complete contract?
A) The contract allows for a party to exploit weaknesses in another party's position as the transaction unfolds
B) Elimination of opportunistic behaviors
C) Stipulation of each party's responsibilities and rights
D) Binding instruction for each party on courses of action as the transaction unfolds
E) Must be enforceable
Answer: A
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) Which of the following features of transactions make those transactions excellent candidates for alliances?
A) The transaction involves impediments to comprehensive contracting
B) The transaction is complex, not routine.
C) The transaction involves the creation of relationship-specific assets by both parties in the relationship, and each party to the transaction could hold up the other
D) It is excessively costly for one party to develop all the necessary expertise to carry out all the activities itself
E) All of the above
Q2) Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?
A) Backward Integration
B) Forward integration
C) Nonintegration
D) Contractually unbound
E) Contractually bound
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6
Chapter 5: Competitors and Competition
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Sample Questions
Q1) Which of the following is the definition of "competitors?"
A) Firms that manufacture similar products
B) Firms located in geographic proximity to each other
C) Firms that sell products to the same group of buyers
D) Firms whose strategic choices directly affect one another
E) Firms that purchase factors from the same suppliers
Q2) In what type of market structure to sellers set identical prices and are prices generally driven down to marginal costs?
A) Perfect competition
B) Monopolistic competition
C) Oligopoly
D) Monopoly
E) Diversified
Q3) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
Q4) In a two firm market,let the marginal cost of producing a product be $20 and the market demand for their products be given by Q =12-P +P and Q =12-P +P .What is the Bertrand equilibrium price each firm would produce in this market?
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Page 7
Chapter 6: Entry and Exit
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Q1) What type of entry exists if structural entry barriers are low,and either (1)entry-deterring strategies will be ineffective or (2)the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out?
A) Deterred Entry
B) Judo Entry
C) Stealth Entry
D) Accommodated Entry
E) Blockaded Entry
Q2) Which of the following conditions may make predatory pricing by incumbents rational?
A) When entry costs are very high
B) When entrants are uncertain about market conditions
C) When existing firms have significant coast advantages
D) When entrants are required to obtain extensive licensing and regulatory approvals
E) When exiting firms have increasing marginal revenue
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8
Chapter 7: The Dynamics Competing Across Time
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Q1) What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?
A) Low price clause
B) Price matching clause
C) Best price clause
D) Most favored customer clause
E) Competitive price clause
Q2) Which of the following statements is true about a soft commitment?
A) It is bad for competitors
B) It is good for competitors
C) In Cournot competition, capacity expansion is an example of a soft commitment
D) In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E) Tough commitments are always in the best interest of a firm
Q3) Which of the following practices can help firms facilitate cooperative pricing?
A) Price leadership
B) Advance announcement of price changes
C) Price following
D) Most favored customer clauses
E) Uniform delivered prices
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Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following conditions does not tend to heat up price competition?
A) Many sellers in the market
B) Products are differentiated/buyers have high switching costs
C) Some firms have excess capacity
D) The industry is stagnant or declining
E) There are large/infrequent sales orders
Q2) Which of the following is not a barrier to entry in professional sports markets?
A) Each league has rules governing the addition of new franchises
B) Potential new owners must pay current owners hundreds of millions of dollars
C) Most potential owners must offer to build new stadiums
D) Incumbent teams have rights to veto franchises in their own geographic markets
E) Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped
Q3) Who are the most powerful suppliers in professional sports?
A) Players unions
B) Referees
C) Owners
D) Politicians
E) Cities
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Page 10
Chapter 9: Strategic Positioning for Competitive Advantage
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Q1) What kind of strategy is one by which a firm exploits its benefit or cost advantage through a higher market share rather than through high price-cost margins?
A) Pricing strategy
B) Share strategy
C) Margin strategy
D) Focus strategy
E) Generic strategy
Q2) What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market?
A) Industry effect
B) Competitive advantage
C) Business unit effect
D) Competitive position
E) Market profitability economics
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11
Chapter 10: Information and Value Creation
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Sample Questions
Q1) Which of the following is another term for "teaching to the test?"
A) Sample bias
B) Test variance
C) Teaching discrimination
D) Multitasking
E) None of the above
Q2) Products for which consumers can easily obtain the information required to compare alternatives are called:
A) Experience goods
B) Search goods
C) Retail goods
D) Consumer goods
E) Credence Goods
Q3) Which of the following is measured by a report that assesses how a product is produced?
A) Process
B) Inputs
C) Warrantees
D) Outcomes
E) Longevity
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Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) Which of the following terms describes a nation's position with regard to the elements (e.g.human resources,infrastructure)of production that are necessary to compete in a particular industry?
A) Factor conditions
B) Demand conditions
C) Supply conditions
D) Related supplier or support industries
E) Strategy, structure, and rivalry
Q2) Which of the following products and services depend on standards?
A) Cellular communications
B) Internet
C) Video gaming
D) High-definition television
E) All of the above
Q3) What term best characterizes the battle between firms to innovate first?
A) Market for new ideas
B) New product competition
C) R&D race
D) Innovation competition
E) Patent race
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Chapter 12: Performance Measurement and Incentives
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Q1) Which of the following is least likely a technique firms can use to mitigate the free-rider problem?
A) Firms can reduce the repeated interactions among team members so that actions depend less on what other members may have done in the past
B) Firms can keep teams small
C) Firms can allow employees to work together for long periods
D) Firms can structure teams so that their members can monitor one another's actions
E) Firms can use future periods of interaction and let natural team dynamics of peer pressure and social isolation take place as punishment for team members who have failed to contribute in the past
Q2) Which of the following terms describes a phenomenon whereby individuals ignore their own information about the best course of action and instead simply do what everyone else is doing?
A) Relative performance
B) Absolute performance
C) Herding
D) Risk sharing
E) Pay-for-performance
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Chapter 13: Strategy and Structure
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Q1) What variant of the multidivisional structure whose units cross national boundaries do Kogut and Zander argue is superior at transferring specific types of knowledge across national boundaries?
A) Subsidiary
B) Holding Company
C) Conglomerate
D) Partnership
E) Multinational corporation
Q2) Which of the following structures best describes a small group of people where one member of the group specializes in monitoring and coordinating the work of other members?
A) Complex hierarchy
B) Individually
C) Self-managed team
D) Hierarchy of authority
E) Divisional
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15
Chapter 14: Environment, power, and Culture
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Q1) Which of the following is most true regarding the strategic value of institutional logics?
A) When institutional logics are stable, they have the most strategic importance
B) Institutional logics are coveted by firms (not taken for granted)
C) If firms share an institutional logic, the logic provides a basis for relative advantage among firms
D) Institutional logics are valuable because they raise the costs for firms adapting to their environments
E) Competitive advantage must come on some other dimension than institutional logic if firms share that institutional logic
Q2) Which of the following terms best describes ability that stems from the explicit contractual decision-making and dispute-resolution rights that a firm (or some other source)grants to an individual?
A) Power
B) Authority
C) Culture
D) Influence
E) Contracts
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