Question 1

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, which stages of the value chain should be included within a firm's boundaries and why?
A) Ronal Coase
B) Adam Smith
C) David Ricardo
D) Milton Freidman

Accepted Answer

Ronald Coase is credited with first articulating the question of vertical integration in his paper "The Nature of the Firm" in 1937. He argued that firms exist to minimize transaction costs and that the decision to vertically integrate should be based on whether it is more efficient to produce a good or service in-house or to outsource it from another firm.

Question 2

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.
A) significantly more flexible
B) somewhat more flexible
C) comparatively flexible
D) less flexible

Accepted Answer

Research suggests that vertically integrating is less flexible than not vertically integrating. This is because vertical integration requires companies to have control over their supply chain and production processes, limiting their ability to quickly adapt to changes in the market or take advantage of new opportunities. Non-integrated companies have more flexibility to outsource production or adjust their supply chain as needed.

Question 3

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of
A) forward vertical integration.
B) product differentiation.
C) forward horizontal integration.
D) backward vertical integration.

Accepted Answer

Backward vertical integration involves a company owning or controlling its own supply chain and manufacturing the components or products it needs for its own production process. In this case, Dell is opening its own factory to manufacture the LCD televisions it sells, which is an example of backward vertical integration.

Question 4

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?
A) Value added
B) Net income
C) Sales
D) Gross margin

Accepted Answer

The answer of Which of the following is not used...

Question 5

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a
A) competitive advantage.
B) temporary dynamic disadvantage.
C) sustainable competitive advantage.
D) competitive disadvantage.

Accepted Answer

If other firms have competitive advantages in the business activities that a firm is considering to enter through vertical integration, then vertically integrating into these activities could put the firm at a competitive disadvantage, as it may not be able to compete effectively in that market. This disadvantage may be temporary or long-term, depending on the firm's ability to develop and enhance its capabilities in these activities.

Question 6

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyer due to any transaction-specific investments a firm has made.
A) firm capability explanations
B) opportunity-based explanations
C) flexibility-based explanations
D) opportunism-based explanations

Accepted Answer

Opportunism-based explanations argue that vertical integration creates value by reducing the risk of opportunistic behavior by suppliers or buyers, which can occur when a firm has made transaction-specific investments.

Question 7

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.
A) 2010
B) 2012
C) 2014
D) 2015

Accepted Answer

The answer of Some observers predict that by ________ an...

Question 8

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.
A) uncertain
B) opportunistic
C) flexible
D) dynamic

Accepted Answer

In an uncertain decision-making setting, there is a lack of knowledge about the future outcomes of an exchange. This makes it difficult to evaluate the potential outcomes and risks associated with investments made in that exchange. The other choices do not adequately describe the characteristic of uncertainty in decision-making.

Question 9

If a firm decided to maintain relationships with several different call center management companies, each of which have adopted different technological solutions to the problem of how to use call center employees to assist customers who are using very complex products, to reduce the uncertainty of whether the people staffing the phone can help the firm's customers, this would be consistent with which explanation of vertical integration?
A) Opportunism-based
B) Flexibility-based
C) Firm capabilities-based
D) Alliance-based

Accepted Answer

Flexibility-based. Maintaining relationships with several call center management companies with different technological solutions allows the firm to have flexibility in adapting to different customer needs and situations, rather than being locked into one specific solution through vertical integration.

Question 10

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.
A) flexibility-based explanation
B) opportunism-based explanation
C) firm capability explanation
D) opportunity-based explanation

Accepted Answer

The firm capability explanation states that firms should vertically integrate into a business activity if they possess valuable, rare, and costly-to-imitate resources in that activity. This approach emphasizes the importance of a firm's internal capabilities and resources in making decisions about vertical integration. The other options (A, B, and D) do not explicitly address the role of firm capabilities in the decision to vertically integrate.

Question 11

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.
A) value added as a percentage of sales
B) simple product diversification
C) competitive advantage
D) competitive dynamic

Accepted Answer

Value added as a percentage of sales measures the value added to a product or service by a firm, which is calculated as the difference between the total revenue generated by the product or service and the total cost of inputs used in producing the product or service. This is a measure of the firm's internal efficiency and effectiveness, and reflects the extent to which the firm relies on its own resources and capabilities to generate sales.

Question 12

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of
A) product differentiation.
B) diversification.
C) vertical integration.
D) competitive dynamics.

Accepted Answer

The number of steps in a firm's value chain that it accomplishes within its boundaries is related to its level of vertical integration, which describes the extent to which the firm controls its own supply chain and production process. This can range from complete vertical integration, where the firm handles all aspects of production and distribution, to no integration at all, where the firm outsources everything. Product differentiation, diversification, and competitive dynamics are not directly related to the level of vertical integration.

Question 13

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of
A) forward vertical integration.
B) backward vertical integration.
C) forward horizontal integration.
D) backward horizontal integration.

Accepted Answer

Forward vertical integration involves a company expanding into a stage of production or distribution that is closer to the end consumer. Apple, Inc. opening its own retail stores to sell its products is an example of forward vertical integration as they are moving closer to the end consumer by owning their own distribution channel.

Question 14

________ exists when a firm is unfairly exploited in an exchange.
A) Competitive advantage
B) Business level strategy
C) Opportunism
D) Corporate level strategy

Accepted Answer

Opportunism is the act of taking advantage of another party unfairly in a transaction or exchange. This often involves one party exploiting their power or knowledge to gain an unfair advantage over the other party. Therefore, option C is the correct answer. The other options, such as competitive advantage and business/corporate level strategies, do not relate to unfair exploitation in an exchange.

Question 15

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.
A) Flexibility
B) Dynamic capability
C) Opportunism
D) Uncertainty

Accepted Answer

Flexibility refers to the ease with which a firm can adjust its strategic and organizational decisions in response to changes in the business environment. The higher the level of flexibility, the lower the cost of changing decisions. Therefore, if a firm has low flexibility, the cost of altering strategic and organizational decisions will be high.

Question 16

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?
A) Opportunism-based
B) Flexibility-based
C) Firm capabilities-based
D) Alliance-based

Accepted Answer

Opportunism-based

Question 17

A firm with a ________ ratio between value added and sales has brought ________ of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.
A) low; many
B) high; many
C) medium; many
D) medium; few

Accepted Answer

A high ratio between value added and sales indicates that the firm is performing many of the value-creating activities associated with its business inside its boundaries, which is consistent with a high level of vertical integration.

Question 18

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.
A) alliance-based
B) flexibility-based
C) firm capabilities-based
D) opportunism-based

Accepted Answer

The answer of A(n) ________ approach to vertical integration suggests...

Question 19

Vertical integration is a type of
A) business strategy.
B) generic strategy.
C) differentiation strategy.
D) corporate strategy.

Accepted Answer

Vertical integration is a corporate strategy in which a company acquires or controls other businesses that are involved in different stages of the production and distribution process, in order to achieve greater efficiency and control over the entire supply chain.

Question 20

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
A) opportunity-specific investment
B) transaction-specific investment
C) competition-specific investment
D) opportunistic investment

Accepted Answer

The answer of A(n) ________ is any investment in an...

Quiz 6: Vertical Integration

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, which stages of the value chain should be included within a firm's boundaries and why?

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyer due to any transaction-specific investments a firm has made.

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of

________ exists when a firm is unfairly exploited in an exchange.

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?

A firm with a ratio between value added and sales has brought of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.

Vertical integration is a type of

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.