Strategic Management II resit exam, July 11, 2016

Name:
NIA:

Read the instructions carefully before starting the exam:

The exam sheet cannot be touched until permission is given. Touching the
exam sheet before the instructor allows it will be recorded as an attempt to
cheat. All students must start the exam at exactly the same time.

The very first thing you have to do when the exam starts is to .fill out your
name and NIA in the appropriate place. Mark your answers on both the exam
copy and the optical sheet.

All the sheets of the exam should be kept stapled together. The only
additional piece of paper allowed is the optical sheet.

Importantly: On the optical sheet you must correctly enter:

o DNI
o GRUP: your group number
o Your user ID (Uxxxxxx): Fill only the 5 or 6 digits on the rightest box.
e.g. With user ID number U12345, fill

There is only one correct answer out of the four or five proposed answers. For
the correct answer you get 5 points, for any incorrect answer you lose
1.5 point.
Exercise 1 Which of the following issues can be possible reason for a
corporate discount?
a) The corporation has economies of scope
b) Empire building by the CEO
c) Winner’s curse in acquiring other firms
d) Answers (a) and (c) are correct
e) Answers (b) and (c) are correct

Exercise 2 The long tail effect due to internet refers to

a) Product sales distribution is more concentrated in the internet channel
due to lower search costs.
b) Product sales distribution is characterized by few product concentrating
most of the sales.
c) Product sales distribution has a higher mean due to lower search cost.
d) Product sales distribution is less concentrated in the internet channel
due to lower search costs.
e) Product sales distribution has a Gaussian shape.

Exercise 3 Pepsi and Coca-Cola’s choice of buyer in the bottling stage of

the vertical chain is an example of:
a) Downstream integration
b) Joint venture
c) Tapered integration
d) Subcontractor network
e) None of the above

Exercise 4 It is easier to develop a competitive advantage in benefits when

the product is:
a) A search good.
b) An experience good.
c) An inferior good.
d) Scale economies have not been exploited yet.
e) Price elasticity of demand is high.

Exercise 5 The following equality was discussed in class:

𝑝 − 𝑀𝐶 1
=
𝑝
What can we learn from it?
a) More price sensitive consumers lead to higher marginal costs
b) Higher elasticity leads firms to charge a higher price
c) Less price sensitive consumers lead firms to obtain higher profits
d) Price does not depend on elasticity in equilibrium
e) In perfect competition, elasticity does not play a role in pricing
Exercise 6 UPF students receive a discount in the local swimming pool.
This is an example of:
a) First-order price discrimination
b) Second-order price discrimination
c) Product bundling
d) Vertical differentiation
e) None of the above

Exercise 7 According to Porter's five forces analysis, identify which of the

following factors increase the average profitability of firms in a market:
a) Firms can adjust their prices rapidly.
b) An excess of production capacity in the market.
c) Market structure of suppliers is concentrated.
d) Availability of product substitutes.
e) Low production costs.

Exercise 8 Consider the following statements

I. As interest rate increases collusion becomes less likely
II. Grim-trigger strategy does not require credible punishments
III. Higher market volatility increases the likelihood of collusion

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statements I and II
e) Statements II and III

Exercise 9 If entry into the market would occur, a tough commitment:

a) Always leads to an increases in price
b) Never leads to an increase in price
c) Only leads to an increases in price in case of Bertand competition
d) Only leads to an increase in price in case of Cournot competition
e) Does not affect price
Exercise 10 Competition in a duopoly can be close to the perfect competition
outcome.…
a) If consumer demand elasticity is larger than one.
b) If there is excess capacity in the market and products are perceived as
homogeneous by consumers.
c) If production costs are low enough, and products are perceived as
homogeneous by consumers.
d) It is not possible, since market concentration is very high.

Exercise 11 Both locals and tourists buy souvenirs. In the souvenir market
tourists are uninformed about prices. Which of the following statements is
correct?
a) The higher the number of tourists, the higher the price in the market
b) In Bertrand competition, price is not affected by the number of tourists
c) Locals would be better off if no tourists bought souvenirs
d) Answers (a) and (c) are correct
e) Answers (b) and (c) are correct

Exercise 12 Consider the following statements

I. A competitive advantage must always last for a long time
II. First-mover advantage can lead to a competitive advantage
III. Brands and patents cannot be considered a competitive advantage

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statements I and III
e) Statements II and III

Exercise 13 If we have a cost advantage over our competitors and the price
elasticity of demand is low due to high horizontal differentiation in the market, the
best strategy to exploit the comparative advantage is:
a) Set a price very similar to that of my competitors.
b) Double production.
c) Set a price higher than that of my competitors.
d) Follows a “wait and see’’ strategy.
e) Set a price lower than that of my competitors.
Exercise 14 The process of creative destruction:
I. Emphasizes the importance of dynamic efficiency
II. Argues that hypercompetition harms society
III. It is mainly large corporations which lead to innovation
Which of the above statements is correct?
a) Statement I
b) Statement II
c) Statement III
d) Statements I and III
e) Statements II and III

Exercise 15 There exist network externalities

a) When marginal cost increases with the level of production.
b) When marginal cost decreases with the level of production.
c) In telecommunication and electricity markets only.
d) When consumers need to be linked with the provider through a
network.
e) When the value of the good is increasing in the number of consumers.

Exercise 16 The next sentences present reasons for integrating an activity

within the firm. Identify the one which is a fallacy.
a) To avoid paying profits to suppliers.
b) To avoid coordination problems with providers.
c) To avoid the problem of the "double marginalization".
d) To avoid the leakage of proprietary information.
e) To avoid a hold up problem with a provider

Exercise 17 A learning curve of 80% implies that

a) The experience rate (the rate between marginal and average cost) is
0.8.
b) Doubling cumulative output reduces unit cost by about 20 percent.
c) The experience rate (the rate between marginal and average cost) is
0.2.
d) Learning takes places only 80% of the times, the task is undertaken.
e) Doubling cumulative output reduces unit cost by about 80 percent.
Exercise 18 If the demand of a product increases, we expect that…
a) It will not affect firms' make-or-buy decisions.
b) Firms are less likely to outsource production of inputs than before.
c) Firms are more likely to outsource production of inputs than before.
d) Transaction costs are likely to decrease.
e) Firms are more likely to make a joint venture with a competitor

Exercise 19 Identify which of the following factors decreases the probability

of collusion (cooperative pricing) within a market.
a) There is a price leader in the industry, which announces price changes
ahead of others.
b) The market demand is expected to increase.
c) The Industry is subject to cyclical fluctuation in demand, and we are in
a boom
d) The Industry is subject to cyclical fluctuation in demand, and we are in
a bust

Exercise 20 A necessary condition for a strategy of limit pricing to be

effective is that:
a) Prices are not too low.
b) The number of potential entrants is small.
c) There exists asymmetric information, for example information related to
production costs.
d) The number of potential entrants is low.
e) The incumbent is risk averse.