Industrial Organization Exam
Bank
Course Introduction
Industrial Organization explores the structure, behavior, and performance of firms and markets, focusing on how businesses interact within different competitive environments. The course examines key concepts such as market power, pricing strategies, barriers to entry, product differentiation, and the impact of public policy and regulation on market outcomes. Through theoretical models and real-world case studies, students analyze the strategic decision-making processes of firms and the implications for consumer welfare, innovation, and economic efficiency.
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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Sample Questions
Q1) What mode of long-distance communication first laid the groundwork for today's modern communication forms?
A) U.S. Postal Service
B) Private mail service
C) Telegraph
D) Telephone
E) Railroad
Answer: D
Q2) What firm is generally regarded as being the first to extensively use mass production processes?
A) IBM
B) Burroughs
C) Remington Rand
D) Ford
E) Sears
Answer: D
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3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Which of the following is generally a way that LBOs can help a firm realize its potential value?
A) The synergies created allow for cost savings
B) The transaction reduces the disparity between a firm's actual and potential share price
C) The acquisition reduces the likelihood of competition in the industry
D) The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds
E) The buyout gives an opportunity to adjust the management structure and makeup
Answer: D
Q2) Why is firm specific learning better in general for an organization?
A) Encourages individuality among workers within the organization
B) Keeps unionized workers happy
C) Allows workers to acquire skills they can then "shop around"
D) Ensures worker knowledge is tied to current employment
E) Increases complexity and creativity in the organization
Answer: D
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4
Chapter 3: The Vertical Boundaries of the Firm
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Sample Questions
Q1) Which of the following has a downstream relationship with a Toyota Motor Corporation?
A) Steel manufacturers
B) Tire companies
C) Dealerships
D) Paint producer
E) Car parts manufacturer
Answer: C
Q2) What do the vertical boundaries of a firm refer to?
A) The activities the firm itself performs versus purchases from independent firms
B) The level of expertise of the firm's workforce
C) The breadth of products a firm produces
D) The production output level for a firm
E) The chain of production processes from raw materials to finished good
Answer: A
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) 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
Q2) Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remaining portion from independent firms?
A) Forward Integration
B) Tapered integration
C) Backward Integration
D) Balanced integration
E) Combined integration
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6
Chapter 5: Competitors and Competition
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Sample Questions
Q1) What is defined by the number and size distribution of the firms in a market?
A) Herfindahl index
B) Market share
C) Market structure
D) SSNIP
E) Numbers-equivalent of firms
Q2) What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)?
A) Horizontal differentiation
B) Vertical differentiation
C) Idiosyncratic differentiation
D) Spatial differentiation
E) Non-price differentiation
Q3) 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
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Page 7
Chapter 6: Entry and Exit
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Sample Questions
Q1) How can incumbents legally erect entry barriers around novel and non-obvious products or production processes?
A) Collusive pricing
B) Predatory pricing
C) Patents
D) Formation of a cartel
E) Price fixing
Q2) Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?
A) Limit pricing
B) Price leading
C) Predatory pricing
D) Quality pricing
E) Capacity expansion
Q3) What was the cause of Walmart's exit from the German market?
A) Loss of a predatory pricing lawsuit
B) High tariffs on imported goods
C) Total revenue that failed to cover sunk costs
D) German regulations against foreign owned firms
E) None of the above
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Chapter 7: The Dynamics Competing Across Time
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Sample Questions
Q1) What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself?
A) Uniform delivered pricing
B) Uniform FOB pricing
C) Uniform customer pricing
D) Uniform favored pricing
E) Uniform competitive pricing
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) In a six-firm market,if all firms charge the monopoly price,the profit equals $120,000.In that same six-firm market,if all firms instead charge the prevailing price,the profit is $60,000.If the pricing period is one-month long,what is the maximum monthly discount rate implied for each firm to still have an incentive to independently price at the monopoly level?
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Page 9
Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following is not a significant entry barrier in the commercial airframe manufacturing market?
A) High development costs
B) Learning curve in production
C) Raw materials and labor
D) Airlines prefer to purchase from the same manufacturer
E) Airlines are reluctant to purchase from startups
Q2) Which of the following is generally thought of as a buyer in the hospital industry?
A) Pharmaceutical drug houses
B) Medical equipment companies
C) Technician
D) Patients
E) Nurse
Q3) Substitutes erode profits because of which of the following factor?
A) Substitutes compete for similar inputs driving up production costs
B) Substitutes divide demand and drive up internal rivalry
C) Firms producing substitutes use similar worker skills dividing the labor pool
D) Manufacturers of substitutes enter markets later and have lower sunk costs
E) None of the above
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Page 10
Chapter 9: Strategic Positioning for Competitive Advantage
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Sample Questions
Q1) Benefit proximity refers to which of the following?
A) Competing firms offering products with exactly the same benefit
B) Cost leading firms offering products with slightly less benefit
C) Product benefits that cannot easily be differentiated by the consumer
D) Cost leading firms offering products with slightly more benefit
E) The inability for competing firms to produce products with similar benefits
Q2) Which of the following is a capability?
A) Patents and trademarks
B) Brand-name reputation
C) Installed base
D) Organizational culture
E) Sourcing skills
Q3) What is one way to measure a firm's willingness-to-pay?
A) Marginal profit per unit of production
B) Value added analysis
C) Cost-benefit analysis
D) Input-output analysis
E) Sales-per-cost analysis
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Chapter 10: Information and Value Creation
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Sample Questions
Q1) Products for which consumers cannot easily compare product characteristics and value information from others are called:
A) Experience goods
B) Search goods
C) Retail goods
D) Consumer goods
E) Credence Goods
Q2) Which of the following is not a reason for customer survey bias in quality measures?
A) Different customers may use different measurement criteria
B) Customers may have an incentive to inflate ratings to influence the average score
C) Customers often lie in consumer surveys
D) Customers are reluctant to leave negative feedback
E) Consumer feedback is unverifiable.
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12
Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) 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
Q2) What term best describes assets that are more valuable when used together than when separated?
A) Isolating
B) Value-creating
C) Imperfectly mobile
D) Scarce
E) Cospecialized
Q3) Which of the following is the weakest an example of a "shock"?
A) Contracting to use another firm's proprietary process
B) Product Innovations
C) Discoveries of new sources of consumer value or market segments
D) Shifts in demand
E) Changes in public policy that enables firms to significantly shift their strategic position in a business
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Chapter 12: Performance Measurement and Incentives
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Sample Questions
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 factors is an effective tool for companies to use to mitigate hidden action and hidden information problems in agency relationships?
A) Monitoring
B) Offshoring
C) Coordination
D) Objectives
E) Confrontation
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Chapter 13: Strategy and Structure
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Q1) Which of the following terms involves the flow of information within an organization to facilitate subunit decisions that are consistent with each other and with organizational objectives?
A) Complex hierarchy
B) Coordination
C) Control
D) Hierarchy of authority
E) Departmentalization
Q2) Which of the following modes of task interdependence exists when two or more workers or work groups depend on each other to do their work?
A) Technology interdependence
B) Environment interdependence
C) Reciprocal interdependence
D) Sequential interdependence
E) Pooled interdependence
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15
Chapter 14: Environment, power, and Culture
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Q1) What aspect(s)of internal context are important in situations of chronic goal conflict?
A) Formal authority
B) Formal controls
C) Contracts
D) Power and culture
E) Exclusive dealings
Q2) Which of the following refers to when a firm with a patent uses its market power to set a high price - cost margin?
A) Cost power
B) Pricing power
C) Legal power
D) Limiting power
E) Structural power
Q3) Which of the following is the most visible example of a firm's social context?
A) Employment practices
B) Contracting
C) Regulation
D) Entry-deterring behaviors
E) Formal controls
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