Question 1

A fragmented industry is an industry that has experienced an absolute decline in unit sales over a sustained period of time.

Accepted Answer

A fragmented industry refers to an industry that is made up of many small firms, none of which has significant market share or power. It does not necessarily indicate a decline in unit sales.

Question 2

A firm's supplier poses a greater threat if the supplier's industry has a large number of firms, none of which dominate the supplying industry, than if the supplier's industry is dominated by a small number of firms.

Accepted Answer

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Question 3

An emerging industry is an industry in which a large number of small or medium-sized firms operate and no small set of firms has a dominant market share or creates dominant technologies.

Accepted Answer

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Question 4

The threat of buyers is greater if the products or services that are being sold to buyers are standard and not differentiated than if the products sold to buyers are highly differentiated.

Accepted Answer

If the products or services are not differentiated, buyers have more bargaining power as they can easily switch to a competitor. However, if the products or services are highly differentiated, there are fewer substitutes available and the buyers have less bargaining power.

Question 5

If you were to purchase a new Apple iPod and were unable to use your previously downloaded library of digital music with your new iPod, this would be an example of a customer-switching cost you would incur to use Apple's product.

Accepted Answer

This statement is true since if a customer is unable to use their previously downloaded library of digital music on a new iPod, they would incur a cost to switch to Apple's product by having to either purchase their music again from Apple or find a way to transfer their music to the new device.

Question 6

The major opportunity facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industry into a smaller number of firms.

Accepted Answer

Since the industry is fragmented, there is likely to be a large number of smaller firms competing with each other. Consolidating the industry into a smaller number of firms can help to reduce competition and increase the bargaining power of the remaining firms, allowing them to achieve greater economies of scale and potentially increase profitability.

Question 7

It is possible for a single firm to be a complementor of one firm and a competitor of another.

Accepted Answer

This is true because a firm's complementors and competitors can vary depending on the context and industry. For example, a company may be a complementor to one firm's product or service, while also being a direct competitor to another firm in a different market or product category.

Question 8

In general, it is rarely the case that all five forces in the five forces framework will be equally threatening at the same time.

Accepted Answer

The five forces in the framework (competitive rivalry, bargaining power of suppliers, bargaining power of buyers, threat of new entrants, and threat of substitute products or services) interact with each other and their level of threat can vary depending on the industry and market conditions. It is possible for one or a few forces to be more threatening than others at any given time.

Question 9

If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open its own diamond brokerage firm, this would be an example of forward vertical integration.

Accepted Answer

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Question 10

The objective of divestment is to extract a firm from a declining industry.

Accepted Answer

Divestment is a strategy used by firms to exit from a declining industry and focus on core businesses or invest in new and growing industries. By divesting, the firm can free up resources to invest in more profitable businesses, reduce risks, and improve performance.

Question 11

All divestments are caused by industry decline.

Accepted Answer

Divestments can also be caused by a strategic shift in a company's focus or a desire to reduce risk exposure in a certain industry or asset.

Question 12

Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes.

Accepted Answer

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Question 13

A firm following a niche strategy in a declining industry reduces its scope of operations and focuses on narrow segments of the declining industry.

Accepted Answer

This statement is true. A niche strategy involves focusing on a specific, narrow segment of a market, which could be effective in a declining industry where there may be less competition in certain segments. This allows the firm to maintain profitability by controlling costs and catering to a specific customer need.

Question 14

Mature industries are characterized by elements such as slowing growth in total industry demand, a slowdown in increases in product capacity, and an overall increase in the profitability of firms in the industry.

Accepted Answer

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Question 15

Sophisticated software can enhance the value that customers receive from a personal computer. Therefore, software can be said to be a complementor of a personal computer.

Accepted Answer

Software enhances the value that customers receive from a personal computer, making it a complementor.

Question 16

Product innovation is an effort to refine and improve a firm's current processes.

Accepted Answer

Product innovation is an effort to create, develop, and launch new products or services that are different and better than the existing ones. It involves researching and identifying customer needs, exploring new technologies and designs, and developing unique features and functions to make the product stand out in the market. The focus is on creating something new, rather than just refining current processes.

Question 17

First movers that invest only in technology usually obtain sustained competitive advantages, even if they do not tie up strategically valuable resources in an industry before their full value is widely understood.

Accepted Answer

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Question 18

Firms pursuing a harvest strategy in a declining industry do not expect to remain in the industry over the long term.

Accepted Answer

A harvest strategy typically involves maximizing short-term cash flows while minimizing long-term investment in the industry, indicating the firm's intention to eventually exit the industry. Therefore, firms pursuing a harvest strategy do not expect to remain in the industry over the long term.

Question 19

According to Bradenburger and Nalebluff, a firm's competitors help increase the size of a firm's markets while complementors divide this market among a set of firms.

Accepted Answer

According to Bradenburger and Nalebluff, complementors increase the value of a firm's product or service and help to expand the market, while competitors compete for a share of that market.

Question 20

In an industry, the products or services provided by a firm's rivals meet approximately the same customer needs in the same way as the products or services provided by the firm itself, whereas substitutes meet approximately the same customer needs but do so in different ways.

Accepted Answer

This is a correct description of the difference between industry rivals and substitutes.

Quiz 2: Evaluating a Firms External Environment