All Weeks Advanced Competitive Strategy Coursera Quiz Answers
Advanced Competitive Strategy Coursera Quiz Answers
Week 1: Maintaining your Customer Base
Q1. Which of these can be considered lock-in strategies?
provide a contract that can be terminated at any time without penalty.
collect stamps for every coffee you buy at Starbucks and get the tenth coffee for free.
loyalty programs with airlines.
introducing Nintendo GameCube which requires specific discs that are incompatible with other game consoles.
provide an open software which everybody can use and improve.
Q2. Causes of switching costs regarding operating systems can be…
…training of employees.
…investment in new printer.
…investment in software/hardware.
Q3. Examples for different types of switching costs are…
…relationship-related switching costs.
…product-related switching costs.
…cost-related switching costs.
…organizational switching costs.
…innovation switching costs.
Q4. Suppose you want to switch transaction partners. In which of the situations described in the following do you incur direct switching costs?
You want to outsource a service to a company and are convinced of their reliability and the quality of their service due to your prior experience with said company.
You have a loyalty program with Lufthansa and get the Lufthansa gold card on top.
You want to switch your insurance but aren’t sure if the new supplier is any good.
You want to terminate your contract early, thus you have to pay out the phone contract.
You move to a new city and don’t know anyone there.
You want to buy a new software which is compatible with your old computer.
Q5. Which of these statements are true?
A customer will switch to a new supplier if the “goodie” received from the new supplier for switching and his utility increase are bigger than his switching costs.
The investment decision of a new supplier to make a customer switch depends on whether the profit increase that the supplier obtains from the new customer is larger than the costs that would be involved for the new supplier in making the customer switch (including those of any potential switching goodies that the supplier would give to the new customer).
A supplier should make an investment to make a customer switch as long as the costs of this investment are smaller or equal to the profit increase from the new customer minus the costs of the switching goodie.
A customer will switch to a new supplier if the “goodie” received from the new supplier for switching is bigger than his switching costs.
The customer’s benefit from switching to a new supplier is always bigger than the supplier’s profit from gaining a new customer.
A customer who wants to switch suppliers has to take into account his own utility as well as the supplier’s switching costs to make a good decision.
Q6. You are currently receiving your electrical power from NEO and have an average yearly power consumption of 1000 units of electricity. Another power company Power-On approached you with an offer to switch your electrical supply to them. Power-On knows the price structure of its competitor and thus offers you as a switching bonus to lower its price by 0.1 Euro per electrical unit. Since you have made some bad experiences with NEO (many calls due to wrong billing) you would be relieved to switch and it would be worth 100 Euro to you on top of the cost savings. However the contract with NEO specifically says that termination of the contract will induce a penalty of 50 Euro.
What is your benefit from switching to the new supplier?
Q7. Imagine you are the CEO of a Railroad company offering public transportation for 50 € a month. You have heard rumors that a new bus company is to be founded which also covers all destinations you are servicing. A big group of your customers is expected to be willing to switch to the new bus company because it is put off by your dominant market position and previous price increases. Market research has found out that switching to another company would be worth 150 € to them. However you know that this group of customers would also be suffering from the lower comfort (which can be expressed by 100 €)
How much would you have to additionally give to this group of customers per month (e.g. lower prices or increased services) to not lose them to the bus company?
at least 50 Euro.
less than 50 Euro.
not more than 30 Euro.
at least 30 Euro.
exactly 20 Euro.
Q8. The phone company “Talk-fast” is entering the market which is currently divided among several other phone companies setting a price equal to 100 Euro, making a profit of 30 Euro of each contract per year. In this market, it is common to charge a penalty of 25 Euro when a customer terminates a contract early. “Talk-fast” is setting a price equal to 100 Euro to avoid inducing a possible price war but can set a lower price in the first year to attract some customers.
How much would “Talk-fast” be willing to invest in the form of a goodie per year to make a customer switch to his contract?
a maximum of 3 Euro.
a maximum of 5 Euro.
a maximum of 7 Euro.
a maximum of 15 Euro.
a maximum of 8 Euro.
Q9. Which of the following statements are correct?
Customers often try to decrease switching costs to avoid being locked in by their supplier.
Customers’ switching costs are increased if they can only use supplier-specific complementary goods.
Customers often try to increase switching costs to make sure their supplier is committed to them.
Customers can use anticipated switching costs to negotiate a price reduction before they switch to a new supplier.
Q10. Imagine you are the CEO of a newly founded network operating company called “Sensaphone”. What can you do to increase the customer’s utility from switching to your network?
You provide a high quality network for international calls.
You offer free “Sensaphone-to-Sensaphone” calls.
You offer a service that is valuable for the customer, but cheap for the firm.
You make the use of your service dependent on the purchase of an expensive SIM card that the new customer has to buy from you.
You charge customers for maintaining their old mobile phone number.
Q11. How can customers decrease their switching costs?
- Avoid unduly restricted contracts.
- By signing a long-term contract with one supplier.
- Negotiate portability of specific items like private data, private number etc.
- By buying a house rather than renting it
- By maintaining links and possibly buying from multiple suppliers.
Week 2: Determine your Prices Wisely
Q1. Can you tick all correct answers?
Price discrimination decreases a firm’s profits.
Price discrimination can take advantage of the fact that some customers are willing to pay more than others.
Price discrimination can take advantage of the fact that consumers’ willingness to pay differs for the number of units bought.
Price discrimination can only skim off customers’ willingness to pay for a narrowly defined range of homogenous products.
Price discrimination means that there are no longer uniform prices over all units sold for all customers.
Q2. Assume a market in which one company exclusively produces a certain type of software package. There are three groups of 1000 consumers each in this market: Professionals who need this software package very much and are willing to pay 100 Euro for it, students who do not necessarily need the package, are financially limited and are thus only willing to pay 75 Euro. The third and last group of consumers are work seekers who have the lowest utility from these packages and only want to pay 20 Euro for the packages. Since the software is downloadable and already produced, the marginal costs of the software are 0.
Given that the software company knows the WTP of the respective consumer group and that they can only set one price in this market, what is the best i.e. profit maximizing price?
Q3. Assume a market in which one company exclusively produces a certain type of software package. There are three groups of 1000 consumers in this market: Professionals who need this software package very much and are willing to pay 100 Euro for it, students who do not necessarily need the package, are financially limited and are thus only willing to pay 75 Euro. The third and last group of consumers are work seekers who have the lowest utility from these packages and only want to pay 20 Euro for the packages. Since the software is downloadable and already produced, the marginal costs of the software are 0.
What is the profit if the software company can discriminate the prices for the three groups?
Q4. Which of the following statements are true?
First degree price discrimination is only possible if a firm has information about its consumers available.
First degree price discrimination can only be used if you are able to detect individual consumers’ willingness to pay.
If firms communicate with their customers on a one-to-one basis, it is more likely that they can charge each customer a different price.
On the web, firms gather information like demographics on each consumer through registration and clickstream.
First degree price discrimination is a mechanism of second degree price discrimination.
The internet makes perfect price discrimination easier for firms.
First degree price discrimination is possible if firms can observe their consumers’ willingness to pay imperfectly.
Airlines use first degree price discrimination by different pricing of their flight classes.
Q5. It is easier to conduct first degree price discrimination in the context of online commerce because …
… it is possible to offer different prices to different customers.
… the price sensitivity of customers in online shops is always the same.
… firms can have more information about the customers e.g. by recording their browsing history.
… online customers are less loyal.
… firms can reach a larger customer base via online marketing.
Q6. Tick the correct boxes!
In second degree price discrimination, firms may offer different combinations of price and quality.
With second degree price discrimination consumers cannot self-select.
Tying is a type of second degree price discrimination.
Second degree price discrimination is also referred to as direct price discrimination.
An advantage of second degree price discrimination is that firms do not need to know a specific individual consumer’s characteristics.
Q7. Which example can be illustrated by this scenario of price discrimination?
Student magazine subscription.
Free delivery of cement.
Student version of software.
Q8. What is true about third degree price discrimination?
Firms observe consumer characteristics that allow them to infer the willingness to pay and the price accordingly.
Consumer groups are formed by observable consumer characteristics.
The challenge of third degree price discrimination is to find cheap ways of separating groups to price them differently.
Displaying cheap products in the shopping window and selling expensive articles at the back at the store is a typical third degree price discrimination strategy.
Third degree price discrimination is used if consumers’ preferences vary significantly.
Third degree price discrimination means that consumers always get the third unit they purchase for free.
Q9. What is true in the context of non-linear pricing?
Consumers pay more for the first unit (or the first few) than for subsequent units.
A telephone tariff with a fixed payment of 10 Euro per month and a variable part of 5 cents per minute, implements a form of non-linear pricing.
Non-linear pricing can increase the profits of companies significantly.
An important assumption is that customers value the first unit they buy less than the second unit and all following units thereafter.
Compared to linear pricing, introducing non-linear pricing is usually associated with no additional costs.
Non-linear pricing always increases customer satisfaction.
Q10. Which of the following situations are examples for versioning?
A car manufacturer sells one car model but at different prices.
The student version of Stata does not contain all the analytic options and is cheaper than the full version with all features.
Train companies charge more for tickets that have a guaranteed refund in case the trip is cancelled up until one week before departure.
A flower delivery service charges the same price for delivery within the day and delivery within a week.
A bubble gum manufacturer increases the number of its versions of bubble gum by introducing new flavors.
Laptops that are otherwise sold at a medium price are sold at a higher price if the screen can be separated from the keyboard and they can be used as tablets.
A smartphone producer sells a high quality phone at 500 Euro and a low quality phone at 100 Euro.
Q11. Find the correct answers!
Bundling is a type of first degree price discrimination.
Bundling always includes offering different prices to different consumer groups.
Bundling can only be achieved by companies which produce a wide variety of products.
Bundling helps companies to better deal with consumer heterogeneity by selling one product that is very much appreciated by one group of customers along side another product that is more appreciated by another group.
Bundling helps firms increase their revenues by selling two or more different products together at one price.
Q12. What can be possible problems of intertemporal pricing?
Consumers may perceive later price reductions as unfair.
Consumers might anticipate this strategy and delay their purchase decision.
Some consumers might be discouraged by this pricing strategy and don’t buy at all.
Consumers want to be the first to have the new product.
Week 3: Keep Your Business Clean
Q1. Which of these statements are correct?
The decrease in welfare for society in a monopoly situation is called deadweight loss.
In a situation of perfect competition, firms compete against each other unfairly.
In a monopoly, the consumer surplus increases drastically over time.
If there is only one player in a respective market, we can speak of a monopoly situation.
In a situation of perfect competition, firms always make profits.
In a situation of perfect competition, prices are driven down to marginal costs.
Q2. Look at the following graph. Which situation does it describe?
Q3. Which of these statements are correct?
Cartelization forces firms to produce inefficiently.
In a competitive market, firms typically try harder to improve their products.
For customers, competition is better than cartelization.
In a competitive market, customers’ needs can safely be ignored.
Cartelization allows firms to reduce risks.
Competition drives firms to differentiate from each other.
Cartelization allows firms to innovate.
Q4. Competition Policy (EU) and Anti-Trust Policy (USA) …
… reduces competition and thus is beneficial for firms.
… foster rent seeking, encourage competition and thus raise efficiency and innovation.
… seek to hinder firms from building a cartel.
… protect consumers and uninvolved firms from the negative effects of cartelization.
Q5. What is true about the respective instruments of competition policy?
A ban on cartels might be applied if two coffee producers start purchasing their coffee beans together so they can get better prices from their supplier.
Merger control is essential when there is a substantial amount of producers for one product.
Abuse control is an important tool for stopping labor unions from setting higher wages.
A ban on cartels is always the best instrument because it can be implemented very fast.
Abuse control is an effective way of preventing companies from producing abroad.
Abuse control can be applied if a big communication service provider who owns the infrastructure systematically decreases the connection quality of other providers’ services.
Merger control can be applied if the only two breweries in a market merge and would have the power to set much higher prices.
Q6. Which of the following actions of two firms indicate illegal collusive behavior?
The companies have announced to start a joint venture so they can perform more joint research.
There is no apparent pattern in the prices set by the two firms.
Both companies are often active in the same markets.
Both companies often increase their prices at the same time.
If one company increases its prices, the other one slightly decreases its prices.
Each company seems to have selectively abandoned certain markets such that in every market only one company is selling its products.
Q7. To assess the abuse of a dominant position one has to define …
… the number of competing firms on the market.
… which strategy the strongest company is implementing.
… whether the company is dominant in the respective market.
… the relevant market.
… whether the company’s behavior harms or excludes competitors from this market.
Q8. The HM/SSNIP – test is an instrument for …
… defining the relevant market.
… setting the right price for a specific product.
… increasing the profits of a hypothetical monopolist (HM).
… defining customer needs.
… gaining more market power.
Q9. Let’s assume there are three ice-cream companies: Mycream, Iscream and Iceland. Mycream has a market share of 16%, Iscream a market share of 34% and Iceland a market share of 50%. Using the Herfindahl-Hirschman index (HHI) you can say that for the case above the market is …
… highly concentrated.
… acceptably concentrated.
… moderately concentrated.
Q10. Let’s assume there are three ice-cream companies: Mycream, Iscream and Iceland. Mycream has a market share of 27%, Iscream a market share of 38% and Iceland a market share of 35%. Using the Herfindahl-Hirschman index (HHI) you can say that for the case above the market is …
… acceptably concentrated.
… highly concentrated.
… moderately concentrated.
Q11. Which of the following examples indicate a form of market foreclosure?
A bicycle manufacturer charges different prices for different customer groups (based on their willingness to pay).
A big brewery forces contracts with independent restaurants which prohibit the sale of another brewery’s beer in the restaurant.
A big fast food chain in London sets prices below cost to deter other fast food chains.
A phone company offers a mobile contract, which contains a fixed and a variable price component.
A big bubble gum producer increases its product variety.
A laptop producer sells its laptops together with the software package and basic applications.
Week 4: Increase your Returns
Q1. Which aspects have a direct influence on the utility a consumer derives from a network good…
…the number of users of the network.
…the strength of the network effect.
…economies of scale.
…the stand-alone value of the network good.
Q2. What are commonly found characteristics of successful network goods?
The standards of the products must be the same or at least compatible.
The prices of network products can always be perfectly differentiated by first degree price discrimination.
Network goods can only survive if they reach a sufficiently large network size.
Consumers are often locked-in due to switching costs.
The market is often very concentrated between only a few suppliers.
Negative consumption externalities.
To yield network externalities at all, a network good that is offered by one company must also be compatible with that of another.
Q3. Which of these statements are correct? Tick the right boxes.
In a market with direct network effects, the diffusion process follows an s-shape.
The utility a consumer derives from a network good depends on his mood.
The utility function of a good with direct network effects, with its dependent variable being the percentage of adoption and its independent variable being time, typically follows an s-shape.
If Ui = a + uˣ and the stand-alone value (a) of a network good is 5 and the strength of the network effect is 2 and there are 10 people (u) using it, the utility a consumer derives from this good is 105.
Metcalfe’s law describes the exponential growth in potential connections in products with direct network effects. The extra connections increase with each additional user.
An example for a good with direct network effects is Facebook.
Pioneers always have the lowest willingness-to-pay, but want to be the first ones to buy the new product.
Q4. What kind of adopters exist in network industries?
Q5. In the context of network goods, what is true for a utility function Ui= ai+ n^α in which the dependent variable Ui is the utility for each additional user and the independent variable n is the number of users.
The stand alone utility (the utility the consumer gets from the good without any other person using it) is considered in the utility function.
If the utility function is very flat, i.e. the utility increase per additional user increases to the power of 0.5 or lower, then the strength of the network effect is very weak.
The number of users of the network good has no influence on the individual’s utility function.
The utility function of a late adopter increases very much when there are only a few users.
Q6. Which statements are true for compatible goods or goods using the same standard?
DVDs and video cassettes are examples of compatible standards.
Two goods are complementary if the price increase of one good induces a reduction of demand for the other good.
If there is only one standard for a range of network goods, then the consumers are locked-in to their supplier.
Achieving a common standard of complementary products usually requires the coordination of the producers.
Q7. Which of the following examples might describe sources of diseconomies of scale and scope?
In a large automobile company, many employees are planning to form a labor union with the aim of pushing higher wages.
A large consulting company is chosen by many car manufacturers (also competing car manufacturers) due to the specific knowledge of the consulting company in this area.
Employees in a large firm require a higher wage than in smaller companies because the work is more complex and sometimes more boring.
A big producer of car brakes can measure the performance of their employees perfectly due to new investments in monitoring systems.
In a big insurance company, most of the employees may not perfectly know the company’s strategy and targets because it is very hard to communicate with all employees in a short time.
A big chemical company has more fitting applicants than open positions in the city of the production facility.
Q8. Which statements about the make-or-buy decision are true?
Producing firms can pass on risks due to demand fluctuations to suppliers of inputs.
The supplier of an input good serves many firms and thus can offer lower prices.
Firms tend to produce their own input goods because they have higher incentives to innovate than external suppliers do.
By making an input good itself, a car producer can decrease its fixed costs.
By not producing input goods itself, a firm’s need for internal control mechanisms may be less costly.
Q9. Which of these statements are correct? Tick the right boxes.
“Umbrella branding” describes the fact that it is hard to introduce a new product when there is an established brand with the desired image.
Conflicting in is a source of diseconomies of scale.
Horizontal firm boundaries define the quantities and varieties of products produced by the firm.
Inventories are a source for economies of scale. Bigger firms can afford to keep smaller inventories relative to demand compared to smaller firms.
The fact that different products may partially require the same inputs creates economies of scope.
Q10. What is the definition of learning economies?
The average costs of producing a good decline with the quantity of output (history does not matter).
The average costs of producing a good decline with the cumulative quantity of output (history does matter).
Cost savings can be achieved when different goods or services are produced under one roof.
Week 5: Strategies in Network Markets
Q1. Which of these statements are correct? Tick the right boxes.
Critical mass is important for managers, as it is the point where the equilibrium switches from a low to a high adoption equilibrium.
A lower installed base and high network effects make it easier to reach critical mass.
Adoption of a network technology always exclusively depends on the current network size.
The adoption rate of a new technology is the largest in the beginning as the number of potential adopters is the highest.
The utility of a network good that has not been adopted by any other consumer is zero.
The cumulative number of people adopting a new technology is highest at the critical mass point.
Q2. Sony is thinking about introducing a new game console, called SONIX. As there are well known video game consoles on the market already, Sony needs to convince its (potential) consumers that SONIX will be the standard in future. To reach critical mass quickly, Sony…
… has an advantage, as it is a well-known manufacturer.
… could place advertisement on the release-date to inform consumers about their new product.
… could pre-announce SONIX about three months earlier to raise consumer awareness.
… should pre- announce SONIX about 5 years earlier, to get consumer’s interest and delay their purchase decision until SONIX is available.
… doesn’t need to advertise, as it is a well-known manufacturer already and consumers will always buy Sony’s newest products.
Q3. What is a correct statement regarding the adoption of new technologies?
The adoption of a network technology does not depend on the expected network size.
Sometimes technologies reach critical mass many years after their introduction.
A few early adopters are always enough to reach critical mass.
Q4. What is typical for the adoption and critical mass stage in a network market?
For most markets, the critical mass can be easily found.
The more people use a certain network technology, the more people are willing to adopt this new technology.
When the diffusion reaches critical mass it becomes self-sustaining.
In the early phase, many people will adopt a network technology but the adoption rate is steadily slowing down over time.
Adoption of a network technology depends only on the observed network size.
Critical mass marks the end of a previous high-adoption equilibrium.
Q5. How could you convince customers to adopt your technological standard and not a competing one?
Communicate that there are already influential customers using your standard.
Allow customers to lease your product with a return option.
Offer price discounts whenever customers communicate their purchase decision via social media.
Delay the official release date of your product at least three times to build up tension.
Increase your price to demonstrate the exclusivity of your product.
Offer another standard for a different product.
Q6. Two software manufacturers are planning on each bringing a new software to the market, which are going to be incompatible with one another. If firms A and B each adopt their own software, they will get payoffs of 200. If firm A and B adopt firm A’s Software, A will get 400 and B zero profits and vice versa. If both were to adopt the other one’s software, they would each get zero profits.
Which situation in standardization is described in this situation?
Battle of sexes
Tweedledum and Tweedledee
Pesky little sister
De jure standardization
De facto standardization
Q7. What types of compatibility are there?
Q8. What standardization strategy combination is depicted below?
Tweedledum and Tweedledee
Pesky little brother
The battle of sexes
Q9. What can you do to win a standards battle with a competitor?
Start offering complementary products that will increase your customers’ utility from the new technology.
Acquire the rival firm with the competing standard.
Credibly commit to the public that you will not increase prices in the future.
Invest in strategic pre-announcement.
Introduce yet another standard to confuse your competitor’s customers.
Decrease the relative quality of your own technology to release it earlier.
Try to establish a large customer base quickly.
Q10. What are the main differences between skimming and penetration pricing?
With skimming, a company first sets high prices while with penetration pricing, the initial price is set relatively low.
With skimming, a company first sets low prices while with penetration pricing, the initial price is set relatively high.
Movies are a good example for penetration pricing.
With skimming, the price stays always the same while with penetration pricing, the price will be decreased later.
With skimming, the price later decreases while with penetration pricing, the price will be raised later.
The most successful strategy is always the penetration pricing strategy.
Week 6: Achieve Growth with the Help of Partners
Q1. Which statements are correct? Tick the correct boxes!
The word “merger” always describes the process of two unequally sized firms deciding on joint operations and ownerships.
In an acquisition process, there usually is an acquirer and a target.
In an acquisition, the target company is usually the weaker company which is purchased by a more powerful acquisitor.
In mergers, it is possible that stocks are withdrawn and new stocks are issued in place.
The majority of mergers are true “mergers of equals”.
In acquisitions, the target often loses its legal independence.
Q2. True or false? Identify the correct options!
MINI and BMW are examples for complementarity in products.
Firms can be related in terms of their complementarities and strategic characteristics.
Similarities, as well as complementarities, offer synergetic potential.
Economies of power are a source of synergies between merging firms.
To what degree acquirer and target are related and fit together depends on the markets they operate in, as well as on the companies’ core competences.
Q3. Which of the following statements is true?
If the need for organizational autonomy of the target company is low, but the need for strategic integration is high, an absorption of the target company is very likely.
Determinism is the driving force after an acquisition making successful post merger integration possible.
The “conquering army syndrome” can occur because of synergy effects after a merger or acquisition.
In a preservation scenario both firms take on key attributes of one another.
Q4. According to the lecture, target screening, due diligence, financing and _ are necessary steps of an M&A process. Please tick the correct box!
Q5. Which of the following statements about mergers and acquisitions are correct?
Mergers and acquisitions occur in waves over time.
An acquisition occurs if a more powerful company purchases a weaker one.
All merging companies lose their legal independence as a firm.
The value of mergers and acquisitions has decreased over time.
In most industries, acquiring a company is more beneficial than merging with the company.
It is called a merger if two, often equally sized, firms decide on joint operation and ownership.
In a merger, firms jointly decide on purchasing another smaller firm.
Q6. Which of the following can be goals of vertical mergers?
Accessing new markets
Gaining reputation as a reliable business partner
Raising entry barriers to deter the entry of other firms
Escaping the prisoner’s dilemma
Reduction of transaction costs
Q7. What are possible reasons for synergies in the M&A process?
Economies of scale
Economies of scope
Increased market power
Q8. In acquisition processes …
…the target and the acquirer maintain their legal independence.
…the acquirer is the more powerful (and often bigger) company, while the target is the weaker one.
…the target purchases the property rights (shares / assets) of the acquirer.
…the target company and the acquirer company can be equally powerful.
Q9. Which of these are potential problems of merger and acquisitions?
There is a lack of clear leadership to articulate a new purpose for combined firms.
The employees of one firm are too motivated after the merger and scare the other firm’s employees off.
Managers want to manage a larger company for more than just their (private) interests and have an inherent understanding for the benefits that the deal brings to both parties.
Both companies want to achieve integration without estranging either firm.
Loss of morale among employees, or loss of valuable personnel.
Managers cling to the original logic of the deal although the circumstances have changed.
Q10. Merger control means supervising the mergers of large corporations and prohibiting transactions that substantially weaken competition and lead to a dominant position.
Week 7: Grow Organically
Q1. Why is it good to be big? Tick the correct boxes!
Large firms are more likely to be able to spread their risk by operating in more than one market.
Small firms are more likely to be limited in capturing the confidence of consumers through extensive advertising.
Small firms are more likely to be able to control sources of supply.
Large firms are more likely to be limited in R&D capabilities and finding alternatives for patented technologies.
Small firms are more likely to be limited in their access to (cheap) capital.
Large firms are more likely to be able make use of economies of size (technological economies).
Q2. Which statements are true about achieving organic growth?
Organic (internal) growth is often riskier than inorganic (externally generated) growth because it can be easier and riskier to acquire and integrate another existing business into an existing company.
Organic (internal) growth is typically a slower option compared to inorganic growth.
Organic growth cannot be achieved by acquiring new customers and increasing the sales of existing products and services.
Organic growth can be achieved by diversification.
Organic growth can be achieved by introducing new products and services.
Organic (internal) growth is especially prevalent during the early stages of a firm when new markets are built and products are being developed.
Q3. Starbucks has pretty much the same menu all around the world. There are core menu items which are sold in every country, e.g. coffee, cookies and tea. The Starbucks in Munich is thinking about offering a German-Austrian dessert called “Kaiserschmarrn”. Which type of international business strategy would it be pursuing?
Q4. What is true about the strategies in Igor Ansoff’s matrix?
The strategy “protect/build“ intends to stabilize the firm’s position.
“Diversification” can be product-related, technology-related and conglomerate diversification.
“Market development” is a more risky strategy than the “protect/build” strategy.
“Product development” focuses on developing new products for existing markets.
The strategy “protect/build“ aims to retreat from some markets and to focus on a small number of markets.
The strategy “product development” is less risky than “protect/build”.
“Market development” is focused on building new segments or territories for the firms.
“Product development” is always the best strategy regardless of the competencies of the firms.
“Diversification” is the least risky strategy.
Q5. How can organic growth be achieved?
Moving into new (geographic) markets.
Introducing new products and services.
Outsourcing parts of the value chain.
Mergers and acquisitions.
Q6. Which of the following statements are true?
A product-related diversification strategy is based on brand loyalty.
The “diversification” strategy refers to the development of products and markets that lie outside the firm’s core competencies.
The “product development” strategy and the “indifferentiation” strategy are part of Igor Ansoff’s strategy matrix.
The “market development” strategy from Igor Ansoff’s matrix is only about the consolidation and stabilization of a company’s position.
Q7. To boost profits the company “Toby’s sports factory” plans to expand its product range. Until now, the company was producing and selling sport shoes and sport clothes. The new strategy aims at adding accessories like sweatbands and gym bags to its current product offer. Which growth strategy is “Toby’s sports factory” planning to pursue?
Q8. Lack of resources and market entry barriers due to fierce competition can be possible limitations to growth.
Q9. Which of these statements are true? Tick the correct boxes.
An expansion must be carefully planned with regards to its composition.
According to Penrose (1995), the amount of activity that can be planned at any given time limits the amount of new diversifications that can profitably be absorbed in the next period.
Managerial diseconomies and market entry barriers limit a firm’s ability to grow.
The growth of a company usually leads to an increasing amount of responsible managers with authority in defined areas.
Q10. What is true about internationalization strategies?
An international strategy is the middle ground between a global and a multidomestic strategy.
If restaurants rely on their core menu items and global brand but there are some national variations, they pursue a transnational strategy.
An international strategy can also be referred to as an export strategy.
Procter & Gamble seeks to create a uniform global brand. This is an example for a transnational strategy.
A transnational strategy is also called a multidomestic strategy.
Week 8: Final Exam
Q1. Which of the following statements about switching costs are true?
Keeping old customers is typically less profitable than gaining new customers.
Firms should prevent switching of customers to competitors, because new customers are hard to acquire and are not profitable immediately.
To prevent customer churn, firms should try to keep their switching costs low.
To prevent customer churn, firms should try to keep their customers’ switching costs high.
The annual profit per customer after acquisition usually increases over time.
Q2. Which of the following statements about switching costs are true?
An increasing churn rate can be observed in the telecommunication industry.
New customers are more beneficial to the profit of a firm, because better contracts and products can be sold.
Long-standing customers are better than new ones because they are more loyal to the company.
Preventing customers from switching is less important than increasing the quality of services in the car insurance industry.
Long-standing customers are better than new customers because often customers are not profitable from the start.
Q3. Which of these examples create switching costs for the respective consumer?
A German railroad company sells a card to commuters which makes future travels by train less costly for this group of people.
An electrical power producer decreases its prices.
A car manufacturer specializes in electric vehicles.
A coffee shop introduces a scheme that gives customers a free coffee after having had six (paid) cups. You have had four cups so far.
One company develops an innovation and as a consequence dominates the market.
You have saved your image files on floppy discs and hardware manufacturers have abandoned producing floppy disc drives. You just realized that you sold your old computer which had such a drive.
A computer manufacturer offers free software as an additional service to existing customers.
A mobile communication servicer lowers the download volume for its flat rate contracts.
Q4. Through which mechanisms could an airline company increase consumer switching costs?
Vouchers for alternative airlines.
Professional customer service.
Specific customer friendly booking tools.
Mile-based loyalty programs.
Charge extra baggage fee.
Offer less customer service.
Q5. What could a smartphone manufacturer do to increase the switching costs of his customers?
It could open its app-store to other smartphones’ operating systems.
Offer payment contracts which can run up to two years.
Increase the number of countries where free repair services for travelers are offered.
Increase smartphone prices to ensure exclusivity.
Start producing classical landline telephones.
Start selling proprietary complementary products like exterior cellphone loudspeakers or solar cellphone chargers.
Offer less customer service.
Increase the number of available apps which can only be used by the firm’s cellphones.
Give loyal customers who bought their last two cellphones at the company a discount on the purchase of the next cellphone.
Q6. Which statement about first degree price discrimination is true?
First degree price discrimination is always possible if the consumers can easily resell the products.
First degree price discrimination can increase the firm’s profits.
The firm knows the consumers’ willingness to pay perfectly.
It is essential that the firm lowers all of its prices.
With first degree price discrimination, customer satisfaction is higher.
First degree price discrimination could be achieved with individual negotiation.
First degree price discrimination is beneficial for customers.
The firm can set different prices for different customers.
Q7. What is true about second degree price discrimination (SDPD)?
Firms do not need to know an individual consumer’s characteristics and preferences.
Consumers cannot self-select according to their willingness to pay.
SDPD is possible if firms know the willingness to pay of a consumer group.
Versioning and cost-cutting are types of SDPD.
Bundling and non-linear pricing are types of SDPD.
Firms offer different deals, e.g. various combinations of prices and quality / quantity.
Q8. Statistica is a software that comes in two different versions: A regular version sold for 200 Euro and a student version with reduced functionality sold at 100 Euro.
What is this type of price discrimination called?
Third degree price discrimination
Q9. There are three groups of consumers. The first group consists of 10 people who would purchase an album by Beyoncé at a price of 30 USD, but would not purchase an album by Jay-Z at all. In the second group, there are also 10 people who would only like to purchase the album by Jay-Z for a price of 30 USD but would not spend any money on an album by Beyoncé. In the third group, you have ten people who would be willing to buy both albums for a price of 20 USD each.
Is selling a bundle for 40 USD and the individual albums for 30 USD better than selling both albums for 20 USD?
The firm makes higher profits by selling the bundle at 40 USD and the individual albums at 30 USD.
The firms make less money by selling the bundle.
Q10. Which of the following statements about versioning is not true?
Versioning is always cheaper than non-linear pricing for the firm.
There is no clear boundary between versioning and product differentiation.
Firms offer several versions of a product at different price levels.
The different versions of a product usually differ in their quality and functionality.
Flight tickets that charge different prices for different flight classes are an example for versioning.
Q11. Which of these cases are examples of third degree price discrimination?
Students pay less to go to the museum than non-students.
Unemployed individuals pay the same price as working individuals.
Direct flights are more expensive than flights with several stops.
An electricity provider charges a lower price in the evening than during the day.
A firm that only sells bicycles and helmets in bundles.
Smartphones are sold cheaper in poorer countries.
Q12. What is the reasoning behind intertemporal pricing?
Firms will decrease the price of their product later on so they can also attract customers with a lower willingness to pay.
Firms will increase their prices later on, so they can attract more valuable customers in the future.
Firms initially set a relatively high price, so they can first sell to consumers that have a high willingness to pay.
Firms initially set a relatively low price so they can sell first to a broad mass of consumers with a randomly distributed willingness to pay.
Q13. What is true about intertemporal pricing?
- Intertemporal pricing is problematic when it comes to durable goods.
- Intertemporal pricing can be considered a special case of second degree price discrimination.
- Intertemporal pricing is typically a good strategy as consumers perceive later price reductions as fair.
- The idea behind intertemporal pricing is to charge different prices for different products at the same time.
- When implementing a pricing scheme for heterogeneous consumers, firms should lower the price over time to skim off consumers’ willingness to pay efficiently.
- For communication platforms like WhatsApp, it would be wise to first set a lower price and then increase it over time, to initially increase the number of users.
- The idea behind intertemporal pricing is to charge the same prices for different products at different points in time.
Q14. What are positive consequences of competition between firms?
- Competition forces firms to create more and more differentiated products.
- Cartels can be formed and maintained easily.
- Competition can reduce risks for both firms and customers.
- Competition forces firms to innovate.
- Efficient production is fostered by competition.
Q15. Which of the following statements are true?
- No concrete evidence is required for legally banning cartels or fining companies.
- A ban on cartels means banning monopoly profits or contracts between suppliers and customers that restrict competition.
- A ban on cartels means banning agreements between competitors or contracts between suppliers and customers that restrict competition.
- Concrete evidence is required for legally banning cartels or fining companies.
- Separated territories never indicate illegal agreements on exclusive territories.
- Analyzing customers’ moves can help identify collusive behavior.
Q16. Which of the following shapes best depicts a typical diffusion process of a network good?
- Curve 3
- Curve 4
- Curve 1
- Curve 2
Q17. What are indirect network effects when considering the example of credit card payment?
- The more often a consumer pays with the credit card, the cheaper the credit card gets for the other consumers.
- The introduction of credit card payment decreases the network of online banking systems.
- The more consumers use a credit card, the more profitable it is for shops to allow credit card payment in their shops and the more shops offer credit card payment the more consumers will choose credit card payment.
- Indirect network effects suggest that many credit card holders switch to other credit card companies because they don’t like the dominant position of their credit company.
Q18. Which of the following factors influence decision making on horizontal firm boundaries?
- Economies of scale.
- Efficient market boundaries.
- Learning economies.
- Second degree price discrimination.
- Demand has to equal supply in the market.
- Economies of scope.
Q19. If an airplane manufacturer can order its different airplane parts from different suppliers instead of producing the parts internally, consequences are
- The supplied parts are always of lower quality than in the case when the manufacturer produces them on its own.
- The airplane manufacturer and its suppliers will be stuck in a prisoners’ dilemma because it is unclear which standard will be produced.
- Better risk allocation
- High-powered incentives
- High bureaucracy costs.
- Avoid fixed costs
Q20. What factor/factors can let a network technology reach its critical mass faster?
- Increasing competition (in terms of competing technology).
- A shrinking market.
- Lower network effects.
- A lower price.
- A lower adoption rate.
- Availability of substitutes.
- Lower fixed costs of a supplier.
- A higher initial consumer base.
Q21. Imagine you are the CEO of a software company which is about to introduce a new, much safer and more efficient cloud system for online data storage. You have heard from your business intelligence department that some rivals are trying to develop a similar technology with a different standard. What is true when trying to raise attention for your planned standard?
- There is a danger of disappointed customers if the announced release date cannot be realized.
- All potential customers in the respective market will be enthusiastic about this new planned standard.
- Advertisement is rather unimportant because the new technology has enough advantages without having to be advertised.
- In a high-tech market like yours, it is very uncommon that firms preannounce their products (only about 5%).
- An announcement might deter some of your possible rivals in a way that they may stop doing research.
- The reputation of your company increases when announcing this new technology.
- With preannouncing your product, it usually is the case that very patient and convinced customers purchase from a rival company right away.
Q22. If a newer model is compatible with an older model but not vice versa, the two products are…
- One-way compatible
- Marginally compatible
- Fully compatible
- Smart compatible
- Decreasingly compatible
- Backward compatible
- Partially compatible
Q23. If one machine can read the files generated by a competing machine, but not the other way around, the two products are…
- Smart compatible
- Marginally compatible
- Partially compatible
- Backward compatible
- Decreasingly compatible
- Fully compatible
- One-way compatible
Q24. Which strategy in standardization can be seen in the following game matrix?
- Tit for Tat
- Pesky little brother
- Tweedledum and Tweedledee
- The battle of sexes
Q25. Which strategy in standardization can be seen in the following game matrix?
- Tweedledum and Tweedledee
- Tit for Tat
- The battle of sexes
- Pesky little brother
Q26. If a standard setting game can be characterized as the battle of the sexes game…
- …each firm favors compatibility, but would prefer its own technology as the standard.
- …firms prefer to compete to determine the industry standard.
Q27. A German clothes manufacturer intends to grow organically. Therefore, it decides to launch an advertising campaign with which it intends to target senior citizens who were not previously interested in the products of the manufacturer. Which strategy (what are strategies ??) of organic growth that you know from the lecture is the manufacturer pursuing?
- Product development
- Market development
- Learning strategy
- First order price discrimination
Q28. Which statements about small and large firms are true?
- Large firms are more likely to make use of economies of innovation (technological economies).
- Smaller firms are more likely to control sources of supply than large firms.
- Small firms are more likely to be limited in reaching consumers through advertising.
- Large firms are usually superior in terms of managerial skills.
- Large firms are always more profitable than smaller firms.
Q29. Which of the following goals are likely to be pursued by firms that engage in a horizontal merger?
- The firms may want to secure access to new technologies.
- The firms may be able to access new markets / customer groups.
- The firms may want to reduce the risk of becoming a target.
- The firms may want to get rid of resources that they cannot use anymore.
- The firms may want to realize economies of scale or scope.
- Firms may want to get control over the full value chain.
Q30. Which of the following factors determine the success of mergers and acquisitions?
- Predatory pricing
- Slack time
- Post-merger integration
- De jure standards
- Due diligence
- Target screening
- Backward compatibility
- Deal / Financing
Q31. What are possible problems of mergers and acquisitions?
- Managers sometimes cling to the original logic of the deal although circumstances may change.
- The lack of authoritative leadership is a problem that is causing a “leadership vacuum”.
- Value destruction is a problem that appears if the acquirer buys the target firm at a price under its actual value.
Q32. Which are advantages of horizontal mergers?
- In horizontal mergers there are typically production-related advantages for the merging firms.
- Horizontal mergers can decrease the competition in the merging firms’ market.
- In horizontal mergers there can be market-related advantages such as access to new markets and products for the merging firms.
Q33. Which type of post-merger integration is described by number 1 in the table below?
Q34. Which type of post-merger integration is described by number 4 in the table below?
Q35. Which of the following situations are acquisitions?
- A large venture capital fund purchases a startup with the expectation of splitting it up and selling it at a profit.
- Siemens has bought a manufacturer of medical equipment and intends to keep the firm’s “hospital equipment” sector and to sell all the remaining sectors.
- BMW purchases a small brake supplier to gain innovation and patent rights.
- Two roughly equally sized bakery chains jointly decide to become one single firm to be able to survive in this very competitive market.
- A mobile phone manufacturer has hired the former CEO of the biggest competitor.
- A company purchases a 5% share of another company.
- Two medical companies decide on joint research activities.
Q36. Tick the right boxes!
- In a market where firms have experience with cartels they refrain from building a new cartel again.
- Predictable markets favor cartels.
- If it is difficult to monitor prices and sales, cartels are favored.
- In a market with homogeneous products cartels are more likely.
Q37. Tick the correct boxes!
- Exclusive dealing means that firms sign contracts which forbid the other party to sell to or buy from competitors.
- Margin squeeze is a type of market foreclosure and occurs when a company sells essential inputs at a price that destroys the competitors’ margin.
- If one can buy different kinds of software that are compatible with one’s computer, this type of market foreclosure is called tying.
- Pure bundling occurs if a popular song is only available on an album together with other songs.
- Predatory pricing is not really a form of market foreclosure.
- Tying can be considered a type of loyalty program.
Q38. A British fast food chain intends to grow organically. Therefore, it decides to introduce new products from around the world to attract more customers on the British core market. Which strategy of organic growth that you know from the lecture is the manufacturer pursuing?
- Learning strategy
- First order price discrimination
- Market development
- Product Development
Q39. Imagine you are the CEO of a big coffee chain in London. You are currently thinking about switching the supplier of coffee beans. Which of the following situations would incur relationship-related switching costs if you changed your supplier?
- You may have to pay a penalty for terminating the supplier contract with the old supplier.
- You are not 100% sure about the quality of the new supplier’s coffee beans.
- A few of your customers might start going to another coffee company because they miss the slightly different taste.
- Your coffee stores need to get accommodated with the new supplier in terms of delivery and administrative tasks as neither you nor the new supplier know each other’s firm specific preferences, yet.
- The new supplier charges you less than the old supplier.
- You lose your known contact person within the firm of your old supplier.