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WPC 480 Final Exam Questions With Complete Solutions
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WPC 480 Final Exam Questions With Complete Solutions What does corporate strategy address? Where to compete on 3 dimensions: Industry value chain: vertical integration Products & services: diversification Geography: regional, national, or global markets Vertical Integration The process in wh...

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  • October 23, 2024
  • 55
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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WPC 480 Final Exam Questions With
Complete Solutions

What does corporate strategy address? Where to compete on 3 dimensions:




Industry value chain: vertical integration




Products & services: diversification




Geography: regional, national, or global markets




Vertical Integration The process in which several steps in the production and/or

distribution of a product or service are controlled and owned by a single company or entity, in

order to increase that company's or entity's power in the marketplace




Forward Integration Integrating steps that are further forward in the process




Ex. concentrate producers integrating bottling




Backward Integration Integrating steps that are further back in the production process

, WPC 480 Final Exam Questions With
Complete Solutions

Ex. Hermes - getting a crocodile farm to supply own leather




Boundaries of the firm Why does a firm exist and to what extent should the firm expand?




Transaction Cost Economics Helps explain and predict boundaries of the firm




Transaction costs the costs associated with activities that are not directly productive but

are engaged in only as a consequence of the need to coordinate exchange among the parties of a

transaction




Internal transaction costs Recruiting and retaining employees




Paying salaries and benefits




Setting up a shop floor




Providing office space and computers, etc.

, WPC 480 Final Exam Questions With
Complete Solutions

External Transaction Costs Searching for a firm individual to contract with




Bargaining, negotiating, haggling cost




Monitoring, measuring, supervising, enforcing or policing performance




External transaction costs arise primarily as a result of: Opportunism




Asset Specificity




Opportunism Willingness of at least some people to take advantage of others




Dishonesty




Threat of Opportunism Greatest when there is an asset specificity problem

, WPC 480 Final Exam Questions With
Complete Solutions
(i.e. transaction specific investment)




Asset Specificity Unique assets with high opportunity cost - significantly more value in

their intended us than in their next-best use




Ex. site specificity, physical asset specificity, human asset specificity




Asset Specificity Examples Oil refinery & oil pipeline




Auto parts & auto assembly




Benefits of vertical integration: Reduces opportunism




Facilitates investments in specialized assets




Facilitates scheduling and planning




Secures critical supplies and distribution channels

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