The Porter Five-Forces model is designed to help us understand how social attitudes and cultural values impact U.S. businesses.

21.

The Porter Five-Forces model is designed to help us understand how social attitudes and cultural values impact U.S. businesses.    FALSE The five-forces model developed by Michael E. Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces.

AACSB: Analytic Blooms: Remember Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 1 Easy Topic: The Competitive Environment

22.

The five-forces model helps to determine both the nature of competition in an industry and the profit potential for the industry.    TRUE The five-forces model developed by Michael E. Porter describes the competitive environment in terms of five basic competitive forces that affect the ability of a firm to compete in a given market. Together, they determine the profit potential for a particular industry.

AACSB: Analytic Blooms: Remember Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 1 Easy Topic: The Competitive Environment

23.	In some industries, high switching costs can act as an important barrier to entry.    TRUE A barrier to entry is created by the existence of one-time costs that the buyer faces when switching from one supplier's product or service to another.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

24.

Industries characterized by high economies of scale typically attract fewer new entrants.    TRUE Economies of scale refers to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the absolute volume per period increases. This deters entry by forcing the entrant to come in at a large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage. Both are undesirable options.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

25.

The power of a buyer group is increased if the buyer group has less concentration than the supplier group.    FALSE A buyer group is powerful when it is concentrated or purchases large volumes relative to seller sales. If a large percentage of a supplier sales are purchased by a single buyer, the importance of the buyer business to the supplier increases.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

26.

Buyer power tends to be higher if suppliers provide undifferentiated or standard products.    TRUE A buyer group is powerful when the products it purchases from the industry are standard or undifferentiated. Confident they can always find alternative suppliers, buyers play one company against the other.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

27.

Supplier power tends to be highest in industries where products are vital to buyers, where switching from one supplier to another is very costly, and where there are many suppliers.    FALSE A supplier group will be powerful when the supplier group is dominated by a few companies, the supplier product is an important input to the buyer business, or the supplier has built up switching costs for the buyer.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

28. (p. 59)

The power of suppliers will be enhanced if they are able to maintain a credible threat of forward integration.    TRUE A supplier group will be powerful when the supplier group poses a credible threat of forward integration. This provides a check against the industry ability to improve the terms by which it purchases.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

29.

The more attractive the price/performance ratio of substitute products, the tighter it constrains the ability of an industry to charge high prices.    TRUE Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can charge profitably. The more attractive the price/performance ratio of substitute products, the tighter the lid will be on the profits of that industry.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

30.

Rivalry is most intense when there are high exit barriers and high industry growth.    FALSE Intense rivalry is the result of several interacting factors including: numerous or equally balanced competitors, slow industry growth, high fixed or storage costs, lack of differentiation or switching costs, capacity augmented in large increments, and high exit barriers.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

31.

Rivalry will be most intense when there is a lack of differentiation or switching costs.    TRUE Where the product or service is perceived as a commodity or near commodity, the buyer's choice is typically based on price and service, resulting in pressures for intense price and service competition. Lack of switching costs has the same effect.

AACSB: Analytic Blooms: Understand Learning Objective: 02-05 How forces in the competitive environment can affect profitability; and how a firm can improve its competitive position by increasing its power vis-à-vis these forces. Level of Difficulty: 2 Medium Topic: The Competitive Environment

32.

In most industries, new entrants will be a bigger threat because the Internet lowers entry barriers.    TRUE In most industries, the threat of new entrants has increased because digital and Internet-based technologies lower barriers to entry. For example, businesses that reach customers primarily through the Internet may enjoy savings on other traditional expenses such as office rent, sales-force salaries, printing, and postage. This may encourage more entrants who, because of the lower start-up expenses, see an opportunity to capture market share by offering a product or performing a service more efficiently than existing competitors. Thus, a new cyber entrant can use the savings provided by the Internet to charge lower prices and compete on price despite the incumbent's scale advantages.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

33.

The Internet and digital technologies suppress the bargaining power of buyers by providing them with more information to make buying decisions.    FALSE The Internet and wireless technologies may increase buyer power by providing consumers with more information to make buying decisions and by lowering switching costs.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

34.	Switching costs for an end user are likely to be much higher because of the Internet.    FALSE Switching costs for an end user are also potentially much lower because of the Internet. Switching may involve only a few clicks of the mouse to find and view a competing product or service online.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

35.	Because of the Internet and digital technologies, it is very difficult for suppliers to create purchasing techniques that lower switching costs.    FALSE Suppliers may be able to create Web-based purchasing arrangements that make purchasing easier and discourage their customers from switching.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

36. (p. 64)

Reintermediation is responsible for an overall reduction in business opportunities.    FALSE Just as the Internet is eliminating some business functions, it is creating an opening for new functions. These new activities are entering the value chain by a process known as reintermediation.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

37.

The Internet heightens the threat of substitutes because it creates new ways to accomplish the same task.    TRUE Along with traditional marketplaces, the Internet has created a new marketplace and channel. In general, the threat of substitutes is heightened, because the Internet introduces new ways to accomplish the same tasks.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

38. (p. 66)

Five-Forces analysis implicitly assumes a zero-sum game, a perspective that can be short-sighted.    TRUE Five-forces analysis implicitly assumes a zero-sum game, determining how a firm can enhance its position relative to the forces. Yet such an approach can often be short-sighted. It can overlook the many potential benefits of developing constructive win-win relationships with suppliers and customers.

AACSB: Analytic Blooms: Understand Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 2 Medium Topic: The Competitive Environment

39.

Michael Porter's Five-Forces Analysis is a dynamic tool for analyzing industry attractiveness.    FALSE The five-forces analysis also has been criticized for being essentially a static analysis. External forces as well as strategies of individual firms are continually changing the structure of all industries.

AACSB: Analytic Blooms: Remember Learning Objective: 02-06 How the Internet and digitally based capabilities are affecting the five competitive forces and industry profitability. Level of Difficulty: 1 Easy Topic: The Competitive Environment

40.

Complement products typically have no impact on the value of products and services of the firm.    FALSE Complements typically are products or services that have a potential impact on the value of products or services of the firm. Powerful hardware is of no value to a user, unless there is software that runs on it.

Topic: The Competitive Environment