Describe the PESTEL framework for evaluating the impact of external factors on the firm. correct answers Political: government pressures, subsidies + incentives, lobbying, differences in countries
Economic: growth rates, interest rates, employment levels, currency exchange
Sociocultural: norms, c...
BADM 449 Exam 1 || with Error-free Solutions.
Describe the PESTEL framework for evaluating the impact of external factors on the firm.
correct answers Political: government pressures, subsidies + incentives, lobbying, differences in
countries
Economic: growth rates, interest rates, employment levels, currency exchange
Sociocultural: norms, cultures, values, demographics, lifestyle changes
Technological: innovation in products/processes, research + development
Ecological: global warming, sustainability, pollution
Legal: court system, legislation, hiring laws, de-regulation
Describe the four industry structure classifications. correct answers Perfect competition: many
small firms, firms are price takers, commodity product
Monopolistic competition: many firms, differentiated product, medium entry barriers
Oligopoly: few (large) firms, differentiated product, high entry barriers
Monopoly: one firm, considerable pricing power, unique product, high entry barriers
Describe the Structure-Conduct (Strategy)-Performance (SCP) framework. correct answers
Industry Structure (# of buyers/sellers, product differentiation, barriers to entry) ↔
Firm Conduct (pricing, advertising, R&D) ↔
Performance (economic profits, accounting profits, NPV/DCF)
All three are affected by each other; not a one-way casual link
Discuss the Five Forces model. correct answers The Five Forces model is an industry analysis
model designed to explain variance in industry level performance. The forces determine the
profit potential of the industry and shape a firm's competitive strategy
Porter's 5 forces correct answers Threat of Entry/Barriers to Entry
Power of Suppliers
Power of Buyers
Threat of Substitutes
Rivalry Among Existing Competitors
Categories of barriers to entry correct answers Economies of Scale
Experience Curve Advantage
Intended Excess Capacity
Reputation
Product Differentiation
Capital Requirements
High Switching Costs of Buyers
, Access to Distribution Channels:
Favorable Access to Raw Materials and to Markets
Proprietary Technology
Exit Barrier
Economies of Scale correct answers When there are lower setup costs as a percentage of total
costs/there is more specialized machinery and tooling // operating at Minimum Efficient Scale.
Economies of Scope: multiple product economics of scale - shareable inputs make the cost of
production lower Example: Aircraft - Boeing and Airbus can use common wing, nose and tail
components for different models of aircrafts
Experience Curve Advantage correct answers A greater learning curve that is kept proprietary
and not made available to competitors and potential entrants will deter entry
Intended Excess Capacity correct answers Building extra capacity for the intended purpose of
deterring entrants from the industry. Increases the credibility of price cutting as an entry
Reputation correct answers History of incumbent firms reacting aggressively to entrants may
play a role in current market transactions
Product Differentiation correct answers Brand identification and customer loyalty for companies
already in the market can be a barrier to entry Example: Coca-Cola, over the counter drugs
Capital Requirements correct answers high start up costs in a complex industry can deter entrants
High Switching Costs of Buyers correct answers Switching to a new entrant's product can
require substantial costs Example: computer software requires employee retraining
Exit Barriers correct answers Exit barriers of existing companies can be entry barriers to new
entrants
Under what conditions is it likely that supplier power will be high? correct answers -If industry is
dominated by a few supplier companies
-There are no substitutes for supplier products
-Supplier products are differentiated
-There are high switching costs associated with the product
-The product is important input to buyer
Under what conditions is it likely that buyer power will be high? correct answers -There are few
large buyers (potential collusion)
-Products are standardized and undifferentiated
-Buyers face few switching costs
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