Competition and Strategy

Which of the following is not a typical characteristic of perfect competition?

a) Many buyers and sellers

b) Homogeneous products

c) Firms are price setters

d) Free market entry and exit

In a Cournot duopoly model, each firm's output decision is based on:

a) The competitor’s cost function

b) A fixed market price

c) The expected reaction of the rival firm

d) A Bertrand equilibrium

What is the main efficiency loss associated with monopoly pricing?

a) Increase in consumer surplus

b) Elimination of fixed costs

c) Deadweight loss

d) Increased competition

Which pricing strategy involves setting the price below average cost to drive competitors out of the market?

a) Penetration pricing

b) Predatory pricing

c) Cost-plus pricing

d) Value-based pricing

In a Nash equilibrium:

a) Every player chooses a dominant strategy

b) All players maximize joint profits

c) No player can benefit from unilaterally deviating

d) Players randomize over all strategies

Which of the following best describes "Limit Pricing"?

a) Setting a price to eliminate all consumer surplus

b) Setting a price to maximize short-run profits

c) Setting a price low enough to deter market entry

d) Setting a price based on marginal cost

In Bertrand competition with identical products and constant marginal costs, equilibrium price equals:

a) Monopoly price

b) Marginal cost

c) Average total cost

d) Cournot price

Which of the following is not a structural barrier to market entry?

a) Brand loyalty

b) Economies of scale

c) Excess capacity

d) Large capital requirements

What is a dominant strategy?

a) A strategy that always yields the highest joint payoff

b) A strategy chosen after observing the rival's move

c) A strategy that is best regardless of the rival’s actions

d) A strategy used in cooperative games only

A market with one seller and many buyers is referred to as a:

a) Duopoly

b) Oligopoly

c) Monopsony

d) Monopoly

According to Porter, which of the following is not one of the five forces?

a) Bargaining power of buyers

b) Threat of substitutes

c) Power of government regulation

d) Rivalry among existing competitors

In the Stackelberg model of duopoly, the firm that moves first:

a) Has a disadvantage due to commitment

b) Is the price taker

c) Gains a strategic advantage as leader

d) Must follow the Bertrand price

Which market structure allows firms to have some price-setting power, but not total control?

a) Perfect competition

b) Monopoly

c) Oligopoly

d) Natural monopoly

In the prisoner's dilemma, mutual defection results in:

a) Pareto efficiency

b) Dominated outcomes

c) Socially optimal payoffs

d) Nash equilibrium

Which condition best supports the emergence of network effects as an entry barrier?

a) High switching costs

b) Differentiated cost structures

c) Increasing marginal costs

d) Constant returns to scale

A key assumption in the Bertrand model with differentiated products is:

a) Homogeneous cost functions

b) Firms choose quantities

c) Products are perfect substitutes

d) Firms choose prices simultaneously

What is the economic rationale behind bundling in pricing strategy?

a) Reducing fixed costs

b) Preventing price wars

c) Extracting more consumer surplus

d) Meeting antitrust regulations

Which of the following is a key insight from Brandenburger & Nalebuff's concept of co-opetition?

a) Firms should never collaborate with rivals

b) The value pie is fixed and zero-sum

c) Complementors can increase overall value

d) Only dominant strategies matter in practice

Which entry barrier is most affected by regulation and intellectual property law?

a) Network effects

b) Product differentiation

c) Legal restrictions

d) Economies of scale

In a sequential game with perfect information, the appropriate solution method is:

a) Nash equilibrium

b) Dominance principle

c) Backward induction

d) Randomized strategies

Which of the following forces in Porter’s Five Forces framework directly reflects the risk that customers will switch to alternative products?

a) Bargaining power of suppliers

b) Threat of substitutes

c) Rivalry among existing competitors

d) Threat of new entrants

A highly fragmented industry with low growth and undifferentiated products is likely to experience:

a) High supplier power

b) Strong buyer loyalty

c) Low industry rivalry

d) Intense competitive rivalry

Which of the following is not a typical barrier to entry according to Porter?

a) Economies of scale

b) Network effects

c) Government subsidies to new entrants

d) Brand loyalty

In Porter's framework, buyer power increases when:

a) There are few buyers purchasing large volumes

b) Switching costs are high

c) Products are highly differentiated

d) There is a lack of price transparency

Which of the following companies best exemplifies a cost leadership strategy?

a) Apple

b) IKEA

c) Tesla

d) Rolex

Which of Porter’s generic strategies aims to achieve customer loyalty by offering a unique product?

a) Focus cost

b) Cost leadership

c) Differentiation

d) Market penetration

A company pursuing a focus strategy:

a) Targets the entire industry with standardized products

b) Offers a low-cost product to a broad market

c) Serves a specific segment with tailored offerings

d) Avoids competing on price or product features

What is a key risk of the differentiation strategy?

a) Diseconomies of scale

b) Being undercut by lower-cost rivals

c) Customers perceiving the added value as not worth the premium

d) Overproduction

Porter warns against being “stuck in the middle” because:

a) It leads to organizational diseconomies

b) It results in regulatory scrutiny

c) It causes confusion in the supply chain

d) It means lacking a clear source of competitive advantage

Which of the following is a support activity in Porter’s value chain?

a) Inbound logistics

b) Marketing and sales

c) Procurement

d) Operations

Which primary activity in Porter’s value chain includes warehousing and inventory control of inputs?

a) Operations

b) Inbound logistics

c) Outbound logistics

d) Marketing and sales

Which activity in the value chain would most likely include product design and R&D?

a) Service

b) Technology development

c) Operations

d) Human resource management

Differentiation in the value chain is most commonly created through:

a) Low-cost procurement

b) Efficient outbound logistics

c) Superior marketing and product features

d) Economies of scale in operations

A firm using vertical integration to control multiple stages of the value chain aims to:

a) Minimize transaction costs and ensure coordination

b) Diversify into unrelated industries

c) Expand its product range

d) Reduce its brand value

Which of the following statements is true regarding supplier power?

a) It decreases when suppliers are few and switching costs are high

b) It is irrelevant in markets with perfect competition

c) It increases with the availability of substitutes

d) It increases when suppliers can forward integrate

What is the key objective of analyzing the value chain?

a) To identify acquisition targets

b) To classify fixed and variable costs

c) To find sources of cost advantage or differentiation

d) To map the organizational hierarchy

Which of the following is a typical trait of a firm pursuing a cost focus strategy?

a) Selling luxury products globally

b) Serving a niche segment with low-cost offerings

c) Offering broad differentiation across markets

d) Using premium pricing in all customer segments

A company gains bargaining power over suppliers when:

a) It outsources procurement

b) It purchases in small quantities

c) It vertically integrates backward

d) It increases its advertising budget

The term “industry attractiveness” in Porter’s model refers to:

a) The size of the market

b) The expected customer satisfaction

c) The average profitability potential of the industry

d) The share price of leading firms

The strongest force in Porter’s model typically determines:

a) The need for government intervention

b) The firm's optimal capital structure

c) The long-term profitability of the industry

d) The most ethical business practices

What is the primary distinction between Porter’s Five Forces and the Value Net framework?

a) The Value Net ignores competition

b) The Value Net includes customers and suppliers as competitors

c) The Value Net includes complementors as a key category

d) Porter’s model assumes monopolistic markets

In the Value Net, who are "complementors"?

a) Firms that offer similar products in different regions

b) Suppliers that offer differentiated inputs

c) Firms whose products increase the value of your own product

d) Firms that substitute for your offerings

According to Brandenburger & Nalebuff, what is “co-opetition”?

a) An agreement to avoid competition in a specific market

b) Cooperation with customers to set prices

c) Simultaneous competition and cooperation between firms

d) Government-regulated competition rules

Which of the following best illustrates co-opetition?

a) A price war between rivals

b) A merger between two suppliers

c) Competing airlines joining a global alliance

d) Patent litigation between firms

What does the “A” in the PARTS framework stand for?

a) Alignment

b) Added value

c) Asset control

d) Aggressive strategy

Which tactic would increase a firm’s added value in the Value Net?

a) Matching a competitor’s pricing

b) Becoming the only provider of a critical input

c) Offering free trials

d) Cutting ties with all complementors

A firm that helps increase the attractiveness of a platform for users is known as a:

a) Substitute

b) Rival

c) Complementor

d) Supplier

What is a key benefit of cooperating with competitors, according to the co-opetition framework?

a) It eliminates price competition

b) It creates legal monopolies

c) It can expand the overall value pie

d) It reduces innovation incentives

Which of the following is an example of “changing the players” in the PARTS model?

a) Excluding a weak supplier and switching to a competitor

b) Altering the marketing mix

c) Adjusting production processes

d) Increasing the switching costs for customers

In the Value Net, what role do customers play?

a) Passive recipients of value

b) Suppliers of capital

c) Active participants in value creation and capture

d) Agents of regulatory enforcement

What does the "S" in PARTS stand for?

a) Strategy

b) Structure

c) Scope

d) Switching

Which action is best described as "changing the rules" in the PARTS model?

a) Negotiating longer payment terms

b) Launching a new product version

c) Establishing an industry-wide standard

d) Hiring a new CEO

What is the concept of “value capture” primarily concerned with?

a) Creating new demand in emerging markets

b) Extracting profits from the value you help create

c) Building brand equity

d) Reducing fixed costs

How can a firm increase its bargaining power according to the co-opetition theory?

a) Decrease its reliance on suppliers

b) Become indispensable to the value net

c) Focus only on core products

d) Engage in predatory pricing

In co-opetition, what is the result of successful collaboration with complementors?

a) Lower prices

b) Reduced market size

c) Increased total value created

d) Elimination of all substitutes

Which of the following best illustrates the idea of "co-opetition" in digital platforms?

a) Competing apps sharing APIs and user data standards

b) Exclusive content agreements

c) Bundling software features into one product

d) Limiting access to platform development tools

In the Value Net, who can simultaneously act as competitor and complementor?

a) Government agencies

b) Industry regulators

c) Platform providers

d) Ecosystem partners

A firm improves its "scope" in the PARTS model by:

a) Expanding to new markets or applications

b) Reducing product variety

c) Hiring generalists instead of specialists

d) Outsourcing core functions

What is the strategic implication of “changing the game” in co-opetition?

a) Accepting existing industry rules

b) Creating new business models and relationships

c) Focusing solely on internal operations

d) Avoiding partnerships

A strategic partnership with a complementor is most effective when:

a) The partner operates in an unrelated industry

b) The customer overlap is low

c) The joint offering creates a higher value than standalone products

d) The complementor has lower brand recognition

What is the main purpose of limit pricing?

a) To increase long-run profits through higher pricing

b) To signal product quality to consumers

c) To deter potential entrants by reducing perceived profitability

d) To maximize short-term market share

In a sequential entry game, the incumbent’s ability to deter entry depends on:

a) The availability of perfect substitutes

b) The credibility of its threat

c) The firm’s brand image

d) Government subsidies

Which of the following strategies involves temporarily setting prices below marginal cost?

a) Limit pricing

b) Predatory pricing

c) Skimming

d) Price discrimination

Which of the following is considered an illegal entry deterrence strategy under antitrust law?

a) Line extension

b) Bundling

c) Predatory pricing

d) Loyalty programs

A firm that expands capacity beyond market demand is likely attempting to:

a) Minimize marginal costs

b) Discourage new entrants through credible threat of price war

c) Signal high product quality

d) Improve customer satisfaction

What makes a threat to punish entry credible in a game-theoretic sense?

a) It is stated in a public document

b) It aligns with the incumbent’s best response

c) It reduces market efficiency

d) It uses legal enforcement

Product proliferation aims to:

a) Reduce customer acquisition costs

b) Increase switching costs

c) Deter entry by occupying all viable niches

d) Simplify the product portfolio

The goal of "raising rival’s costs" is to:

a) Make the incumbent more efficient

b) Force rivals to improve quality

c) Reduce entrant profitability indirectly

d) Promote industry cooperation

In a Stackelberg competition model, the first mover:

a) Has no influence on the follower

b) Commits to a quantity to influence market outcomes

c) Sets the price for both firms

d) Always produces at marginal cost

According to Porter, which of the following is not a structural entry barrier?

a) Economies of scale

b) Brand loyalty

c) Switching costs

d) Temporary price cuts

Which condition is required for predatory pricing to be rational?

a) High price elasticity

b) Competitor cost leadership

c) Expectation of future recoupment

d) Elastic supply

Which of the following is an example of "strategic entry deterrence"?

a) Large upfront advertising investment

b) Passive market expansion

c) Reducing fixed costs

d) Issuing new stock

Which barrier to entry is most reinforced by a credible threat of price war?

a) Legal regulation

b) Product complexity

c) Capacity precommitment

d) Technological lock-in

A firm that wants to make its limit pricing threat more credible should:

a) Publicly declare price intentions

b) Lower its average cost curve

c) Build excess capacity

d) Reduce quality of service

In a repeated game, the ability to punish a competitor over time:

a) Reduces cooperation incentives

b) Makes tacit collusion more sustainable

c) Increases the first-mover advantage

d) Always leads to equilibrium at marginal cost

Which strategy involves deterring entry by controlling distribution channels?

a) Price discrimination

b) Capacity signaling

c) Exclusive contracts

d) Cost-plus pricing

Why might a firm adopt product bundling as a deterrence mechanism?

a) To raise switching costs for customers

b) To signal low quality

c) To reduce its supply chain dependence

d) To facilitate regulatory compliance

Which of the following is most likely to lead to a credible commitment in an entry game?

a) Repeated advertising

b) Sunk cost investments

c) Vertical integration

d) Public earnings announcements

In an entry deterrence game, the entrant observes that the incumbent has high fixed costs and low marginal costs. What is the likely outcome?

a) Entry is likely

b) Entry is blocked due to credible price war threat

c) Entry will succeed with bundling

d) Incumbent must exit

An example of a “signal” to deter entry would be:

a) Launching a loss-leader product

b) Filing a patent

c) Building a new distribution center

d) All of the above

Why does product proliferation deter entry?

a) It increases demand elasticity

b) It increases customer confusion

c) It reduces the profitability of uncovered niches

d) It makes pricing more difficult

Which of the following would not typically qualify as a credible threat?

a) Announced capacity expansion

b) Public strategic plan

c) Non-binding press release

d) Irreversible investment

Entry deterrence is most likely to be effective in markets where:

a) Marginal costs are rising

b) Customers are perfectly informed

c) Economies of scale are significant

d) Product differentiation is low

A firm’s commitment in strategic deterrence refers to:

a) Flexibility in pricing

b) Reversible marketing choices

c) Irrevocable actions that shape rivals’ expectations

d) Use of third-party logistics

Which strategy increases the cost for a new entrant without changing the incumbent’s own cost structure?

a) Cost-plus pricing

b) Capacity expansion

c) Raising rival’s costs

d) Loss leadership

In a dynamic market, entry deterrence is often combined with:

a) Complete transparency

b) Short-term price maximization

c) Innovation and rapid product cycles

d) Legal monopolization

Which of the following best describes a direct network effect?

a) The more users on one side, the more value to the other side

b) The more users join, the more valuable the product becomes to each user

c) Users incur switching costs when changing providers

d) The marginal cost decreases as output increases

Which of the following is not a characteristic of information goods?

a) High marginal costs

b) High fixed costs

c) Easy to reproduce

d) Susceptibility to piracy

A two-sided market is defined as a platform that:

a) Offers only physical products

b) Provides linear pricing only

c) Connects two distinct user groups with interdependent demand

d) Functions without any network effects

The "tipping point" in network economics refers to:

a) The moment when production costs exceed revenue

b) The critical mass of users needed for self-sustaining growth

c) A sudden drop in demand due to competition

d) The point at which bundling becomes profitable

Which strategy is commonly used to overcome initial adoption barriers in network markets?

a) Skimming pricing

b) Penetration pricing

c) Predatory pricing

d) Cost-plus pricing

What type of network effect occurs when an increase in users attracts more developers or complementors?

a) Direct network effect

b) Negative network effect

c) Cross-side network effect

d) Lock-in effect

Which of the following is most likely to be a natural monopoly due to network effects?

a) A local coffee shop

b) A freight logistics company

c) A social media platform

d) A clothing manufacturer

How can a firm strengthen user lock-in in a network economy?

a) Offer one-time purchase discounts

b) Use open-source code

c) Create high switching costs through data integration

d) Reduce the number of product variants

Which pricing model supports user base growth in a network market?

a) Premium-only pricing

b) Cost-plus pricing

c) Freemium

d) Bundling only

Which of the following is an example of deliberate versioning?

a) Releasing a product in multiple colors

b) Offering different software tiers with varying features

c) Randomized discounting

d) Reducing the product lifespan

What does Metcalfe’s Law state?

a) The cost of digital reproduction approaches zero

b) The value of a network is proportional to the number of users squared

c) The marginal utility of information declines with usage

d) The lifetime value of a customer increases linearly

A digital platform that subsidizes one user group to attract the other is practicing:

a) Versioning

b) Dynamic bundling

c) Cross-subsidization

d) Predatory pricing

Which of the following most likely signals a positive feedback loop?

a) Flat user base despite marketing

b) Increasing user numbers lead to increased complementor activity

c) Decrease in average user revenue

d) Decline in platform engagement

Which of the following is not a switching cost?

a) Early termination fee

b) Incompatibility of data formats

c) Higher product quality

d) User learning time

In network markets, path dependence implies that:

a) Pricing decisions are reversible

b) Market leaders can easily be displaced

c) Early adoption can influence long-term dominance

d) Users always seek lowest cost

What is the primary economic implication of zero marginal cost for information goods?

a) They should be priced at marginal cost

b) Profitability depends on price discrimination

c) Revenue is generated primarily from advertising

d) Demand becomes perfectly elastic

Which of the following actions creates lock-in for a software service?

a) One-time license purchase

b) Use of standard file formats

c) Proprietary ecosystem with limited compatibility

d) Open application programming interface (API)

Why do firms in network industries aim to become the de facto standard?

a) To encourage competitor entry

b) To increase regulation

c) To benefit from increasing returns to adoption

d) To lower switching costs

A platform’s total value increases when:

a) Only one side of the market grows

b) It restricts third-party developers

c) More users attract more complementors and vice versa

d) It moves away from its core segment

Which platform strategy is especially effective in capturing indirect network effects?

a) Single-product dominance

b) Static pricing

c) Developer incentives

d) Cost leadership

In the context of network effects, “chicken-and-egg” problems arise when:

a) Firms misprice their products

b) Users depend on the presence of others before joining

c) Platforms offer free access

d) Switching costs are too low

Why are bundling and versioning particularly suitable for information goods?

a) They reduce regulatory risk

b) They eliminate all switching costs

c) They increase consumer surplus by matching willingness to pay

d) They lower fixed costs

What is the key risk of failing to reach critical mass in a network market?

a) Price war

b) Regulatory barriers

c) Self-reinforcing decline in adoption

d) Excessive product differentiation