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Economics
Industries with high barriers to entry often have high barriers to exit. Explain.
How a firm behaves toward existing competitors is a major determinant of whether it will face entry by new competitors. Explain.
Why is uncertainty a key to the success of entry-deterrence?
An incumbent is considering expanding its capacity. It can do so in one of two ways. It can purchase fungible, general purpose equipment and machinery that can be resold at close to its original
Why are the Cournot and Bertrand models considered static? What aspects of real world behavior might be missing in static models?
An article on price wars by two McKinsey consultants makes the following argument. That the (tit-for-tat) strategy is fraught with risk cannot be overemphasized. Your competitor may take an
How does revenue destruction effect affect the ability of firms to coordinate on a pricing equilibrium?
Firms operating at or near capacity are unlikely to instigate price wars. Briefly explain.
Suppose that you were trying to determine whether the leading firms in the automobile manufacturing industry are playing a tit-for-tat pricing game. What real world data would you want to examine?
It is often argued that price wars may be more likely to occur during low demand periods than high demand periods. Are there factors that might reverse this implication? That is, can you think of
Why does Sutton draw a distinction between endogenous sunk costs such as advertising, and other sunk costs such as capital investments?
Why does Sutton's model apply so well to the consumer goods market? Does Sutton's model describe the structure of other markets?
What is the difference between a soft commitment and no commitment?
Zellers and Wal-Mart are two of Canada's largest retailers. To reflect the strong position of the Canadian dollar, each firm is considering lowering prices on some goods in Canadian stores. The table
Explain why prices are usually strategic complements and capacities are usually strategic substitutes.
Use the logic of the Cournot equilibrium to explain why it is more effective for a firm to build capacity ahead of its rival than it is for that firm to merely announce that it is going to build
Consider a monopoly producer of a durable goods, such as a supercomputer. The good does not depreciate. Once consumers purchase the good from the monopolist, they are free to sell it in the "second
Indicate whether the strategic effects of the following competitive moves are likely to be positive (beneficial to the form making them) or negative (harmful to the firm making them.)a. Two
Which of the following are examples of real options? a. A basketball team owner delays signing a star free agent to a one year contract, preferring to wait and see if his team is in contention for a
"Love Never Dies" is a musical playing in London's West End. The producers are planning a limited run of the musical in Sydney next year. The producers expect that it will cost $1.7 million to mount
It has been said that Porter's five-force analysis turns antitrust law on its head. What do you think this means?
Competition often requires firms to communicate openly. How is this different from collusion? How can antitrust enforcers distinguish between competition and collusion?
In the United States, the incomes of specialists such as heart surgeons can easily triple the incomes of primary care practitioners. Use the Five Forces to offer explanation for this disparity. Can
Comment on the following: All of Porter's wisdom contained in the five-forces framework is reflected in the economic identity: Profit = (Price - Average Cost) x Quantity
How does the magnitude of scale economies affect the intensity of each of the five forces?
How does capacity utilization affect the intensity of internal rivalry? The extent of entry barriers?
How does the magnitude of consumer switching costs affect the intensity of internal rivalry? Of entry?
How do exit barriers affect internal rivalry? Entry?
Rivalry among firms in an industry is typically stronger when which of the following is true about the underlying industry economics? (Note: It is possible that more than one - or none - of the
Consider an industry whose demand fluctuates over time. Suppose that this industry faces high supplier power. Briefly state how this high supplier power will affect the variability of profits over
What does the concept of competition add to the five forces approach to industry analysis?
A firm can outperform its rivals through cost leadership or benefit leadership, but not through price leadership. Explain.
Identify firms that offer good but not outstanding products at reasonable but not especially low prices. Do these firms disprove Porter's ideas about being "stuck in the middle?"
Recall from Chapter 2 Adam Smith's dictum, "The division of labor is limited by the extent of the market." How does market growth affect the viability of a focus strategy?
"Niche strategies are generally more profitable than "mass-market" strategies because they usually imply weaker price competition." Comment.
"Firms that seek a cost advantage should adopt a learning curve strategy; firms that seek to differentiate their products should not." Comment on both of these statements.
Suppose that two firms compete in a market where consumers have identical preferences. The benefits and costs of the two firms are B1, C1 and B2, C2 respectively, where B1 - C1 > B2 - C2. What
Consumers often identify brand names with quality. Do you think branded products usually are of higher quality than generic products and therefore justify their higher prices? If so, why don't all
How do economies of scale affect positioning?
How can the value chain help a firm identify its strategic position?
Two firms, Alpha and Beta, are competing in a market in which consumer preferences are identical. Alpha offers a product whose benefit B is equal to $100 per unit. Beta offers a product whose benefit
The following table summarizes information about U.S. pancake syrup products:Assume the following apply to the time period relevant for the question: ¢ Demand remains stable ¢
Consider a market in which consumer indifference curves are relatively steep. Firms in this industry are pursuing two positioning strategies: Some firms are producing a basic product that provides
In the value-creation model presented in this chapter, it is implicitly assumed that all consumers get the identical value (e.g., identical B) from a given product. Do the main conclusions in this
Identify one or more experience good. Identify one or more search goods. How does the retailing of experience goods differ from the retailing of search goods? Do these differences help consumers?
Can a market be vertically differentiated and horizontally differentiated at the same time? If not, why not? If so, give some examples
What strategies do college students employ in order to "game" their academic report cards? In light of this gaming, how can prospective employers and graduate schools determine the true academic
Do teachers face a conflict of interest when "certifying" their students? What steps can schools and potential employers and graduate schools take to eliminate the problems created by these conflicts?
There are huge economies of scale in the matchmaking market. Explain.
During the 1990's a consortium of private health insurance firms began measuring their own quality. Within a few years, many of these insurers voluntarily disclosed their quality. Why do you believe
Which of the following meet the economic definition of an informative signal? a. A man asks for woman's hand in marriage and gives her a large diamond ring. b. The same man takes his fiancée
Advertising has been likened to offering a performance bond, where the seller must relinquish the bond if certain performance goals are not met. What is the connection between advertising and bonding.
In the United States, most hospitals are non-profit but nearly all pharmaceutical firms are for profit. Can you offer an explanation based on the consumer shopping problem?
When report cards are noisy, high quality sellers can sometimes receive low rankings. Sellers complain that this is unfair. But is it necessarily bad for the consumer?
Give examples of actions that are substitutes in production. Give examples of actions that are compliments in production.
A former dean of the Kellogg School of Management used to warn faculty not to gloat about the school's #1 ranking in Business Week. Why do you suppose he issued this warning?
How might you perform "risk adjustment" of Consumer Reports automobile ratings?
"An analysis of sustainability is similar to a five-force analysis." Comment.
Is the extent of creative destruction likely to differ across industries? Can the risk of creative destruction be incorporated into a five-force analysis of an industry?
Is patent racing a zero-sum game? A negative-sum game? Explain.
What are a firm's dynamic capabilities? To what extent can managers create or "manage into existence" a firm's dynamic capabilities?
"Industrial or antitrust policies that result in the creation of domestic monopolies rarely result in global competitive advantage." Comment.
IQ Inc. currently monopolizes the market for a certain type of microprocessor, the 666. The present value of the stream of monopoly profits from this design is thought to be $500 million. Enginola
How do economies of scale affect sustainability?
Coke and Pepsi have sustained their market dominance for nearly a century. General Motors and Ford have recently been hard hit by competition. What is different about the product/market situation in
Provide an example of a firm that has co-specialized assets. Has the firm prospered from them? Why or why not?
Mercury is a hypothetical store that sells athletic shoes, particularly shoes for runners. Mercury is distinctive in the training of its sales staff. The store has a variety of diagnostic tools,
Which of the following circumstances are likely to create early-mover advantages? a) Maxwell House introduces the first freeze-dried coffee. b) A consortium of U.S. firms introduces the first
In light of the winner's curse, must winning bidders in auctions necessarily "lose" in the sense of paying more than the item is worth? What steps can bidders take to prosper in auctions?
Two incompatible high-resolution audio formats, Super Audio CD (SACD) and DVD Audio (DVDA), were introduced in 2000. Both offer surround-sound music at a quality that approaches the original studio
Consider an industry in which firms can expect to sell 1000 units annually at a price of P. Before firms enter, they do not know their production costs with certainty. Instead, they believe that unit
Using your own experience, if possible, identify three types of hidden information that could affect an agency relationship. Identity three forms of hidden action, as well.
Giganticorp, a large conglomerate, has just acquired Nimble, Inc., a small manufacturing concern. Putting yourself in the shoes of Nimble's employees, what concerns do you have about the implicit
Oil companies such as British Petroleum and Royal Dutch Shell sell gasoline through their own branded gas stations. In some case, these companies own their gas stations. In others, the stations are
In the United States, lawyers in negligence cases are usually paid a contingency fee equal to roughly 30 percent of the total award. Lawyers in other types of cases are often paid on an hourly basis.
Suppose you were granted a "risky job" of the type studied in this chapter. The job pays $40,000 with probability 1/2, and $160,000 with probability 1/2. What is your certainty equivalent for this
Regulated firms, such as electric utilities, typically have limited discretion over the prices they charge. Regulators set prices to guarantee a fixed return to the firm's owners after gathering
Firms often use quotas as part of compensation contracts for salespeople. A quota-based contract may stipulate, for example, that the salesperson will receive a $10,000 bonus if yearly sales are $1
While it is, in principle, feasible for business schools to write explicit pay-for-performance contracts with professors, this is rarely done. Identify drawbacks of the following performance measures
Suppose Minot Farm Equipment Corp. employs two salespeople. Each covers an exclusive territory; one is assigned to North Dakota and the other to South Dakota. These two neighboring plains states have
Consider a potential employee who values wages but also values the opportunity to pursue non-work related activities. (You may think of these activities as relating to family obligations, such as
A team of eight individuals must fold, stuff, seal, and stamp 250 preaddressed envelopes. Offer some suggestions for organizing this team. Would your suggestions differ if, instead of 250 envelopes,
Many of the most pressing organizational issues attracting public attention seem to concern government agencies, especially those with responsibilities for preventing man-made disasters and attacks
While most managers might agree that firms should organize appropriately to their environmental conditions, they might easily differ on what environmental conditions were facing a firm and what an
The Lincoln Electric Company is a longtime maker of welding equipment in Cleveland, Ohio, whose industry performance has been legendary. Its operations have focused around its well-known piece rate
Consider a firm whose competitive advantage is built almost entirely on its ability to achieve economies of scale in producing small electric motors that are used by the firm to make hair dryers,
What types of structures would a firm consider if it were greatly expanding in global operations? What types of organizing problems would it be most likely to encounter?
In the 1980s, Sears acquired several financial services firms, including Allstate Insurance and Dean Witter Brokerage Services. Sears kept these businesses as largely autonomous divisions. By 1994,
Matrix organizations first sprang up in businesses that worked on scientific and engineering projects for narrow customer groups. Examples include Fluor, which built oil refineries in Saudi Arabia,
It is sometimes argued that a matrix organization can serve as a mechanism for achieving strategic fit - the achievement of synergies across related business units resulting in a combined performance
Is it possible to organize too much to meet the needs of the environment? This would be a case of strategic misfit. How would you know if a misfit has occurred? Think of an example of misfit caused
While Internet entrepreneurs worked hard to get their venture to the point of a successful initial public offering (IPO), many discovered that their organizational issues changed and became more
The "#1 or #2; Fix, Sell, or Close" rule was one of the most memorable aspects of Jack Welch's corporate strategy at GE. (Business units needed to achieve a #1 or #2 market share; if not, they had to
How does the resource-dependence view of power differ from the market-imperfections perspective of transactions-costs economics?
Why is firm growth often antithetical to the maintenance of a stable corporate culture?
How can powerful individuals influence a firm's culture? Do "superstar" CEOs really exert the influence on firms that is claimed for them in the popular business press? How much does the leader
The more manageable a firm's culture is, the less valuable it will be for the firm. Agree or disagree-and explain.
Visitors to China are sometimes puzzled by the combination of a very strong central government and a very competitive economic system. What is the connection between the strength of government
When might it not be reasonable to remedy a power differential with a critical buyer or supplier?
Power often accrues to individuals who are very effective in their jobs or to firms that enjoy sustained high performance. If this is so, how is power different from basic competence, efficiency or
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