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Chapter 6 - Competitive Rivalry and Competitive Dynamics
TRUE/FALSE
1. The description of firms’ strategic actions as dynamic in nature suggests that actions taken by one firm
cause responses from competitors.
ANS: T PTS: 1 DIF: med REF: p. 173

OBJ: 1 NOT: comprehension
2. In competitive dynamics, actions taken by one firm seldom elicit responses from competitors.
ANS: F PTS: 1 DIF: med REF: p. 173

3. Expanding geographic scope in the global economy allows competitive rivalry to ease because of the
larger potential customer base.

4. Intensified rivalry within an industry results in decreased average profitability for the firms within it.

5. Google continues to outperform its search engine competitors, despite experiencing intense
competitive rivalry, which illustrates the potential for firms with effective business-level strategies.
ANS: T PTS: 1 DIF: hard REF: p. 176

OBJ: 1 NOT: application
6. Competitive dynamics indicates that firms and their strategic actions are not mutually interdependent.

7. Firms are mutually independent only when two or more firms jockey with one another in their pursuit
of market position.
ANS: F PTS: 1 DIF: hard REF: p. 176

OBJ: 1 NOT: knowledge
8. Market commonality increases the likelihood of competitive interaction in an industry.

9. The relationship of Burger King and McDonald’s provides an example of multimarket competition
where market commonality exists.

10. Multimarket competition refers to situations in which firms compete against each other in several or
many product or geographic markets.
ANS: T PTS: 1 DIF: hard REF: p. 173|p. 177

11. Two firms that share markets but have little similarity in their resources would not be direct and
mutually acknowledged competitors.

12. Ability refers to an attacking or responding firm’s knowledge of the competitive market
characteristics.

13. Choosing not to respond to the competitive actions of large companies with great resources is a viable
long-term option for small companies.

14. First movers can gain a sustained competitive advantage when they reduce their costs through reverse
engineering.

15. According to the discussion in the textbook, it is unlikely that firms that are typically late movers have
much organizational slack.
ANS: T PTS: 1 DIF: hard REF: p. 183

16. Large firms with significant market power who act like small firms (making strategic decisions and
implementing them with speed) and are innovative are typically strong competitors and are likely to
earn above-average returns.
ANS: T PTS: 1 DIF: med REF: p. 183|p. 184

17. Product quality is a universal theme and is a necessary, but not a sufficient condition for competitive
success.

18. Quality alone can assure a firm that it will achieve strategic competitiveness or earn above-average
returns.
19. Quality begins at the bottom of the organization where employees must create values for quality that
permeate the entire organization.

20. High quality increases costs which damages profitability.

21. A tactical competitive action involves a significant commitment of specific and distinctive
organizational resources.

22. It is much easier for a competitor to implement strategic actions than tactical actions.

23. Firms with fewer resources are less likely to respond to tactical actions than to strategic actions in
order to preserve resources for the most important competitive battles.

24. The more dependent a firm is on its market, the more aggressively it will defend it from another
competitor.

25. Firms in a slow-cycle market are shielded from strong rivalry and imitators.

26. Compared with standard-cycle firms, fast-cycle firms have little loyalty to their products.
ANS: T PTS: 1 DIF: med REF: p. 191|p. 192

27. Unlike fast-cycle markets, the struggle for market share in standard-cycle markets is not intense.
ANS: F PTS: 1 DIF: med REF: p. 191|p. 192

28. Competitive advantages are not sustainable in fast-cycle markets.

ANS: T PTS: 1 DIF: easy REF: p. 190
29. Innovation substantially influences competitive dynamics as it affects the actions and responses of all
companies competing in all market types.

30. With 66% of its revenues derived from the North American tire replacement market, Cooper Tire &
Rubber Co. has a low degree of market dependence.

MULTIPLE CHOICE
1. Competitive dynamics refers to a series of:

a. competitive actions taken by only one firm in a market.
b. competitive actions taken by the market leader.
c. competitive actions and competitive responses initiated among firms competing within a
given market.
d. competitive actions and competitive responses initiated among firms competing within
numerous markets.
ANS: C PTS: 1 DIF: hard REF: p. 173
2. Competitive rivalry exists ONLY when:

a. two or more firms establish their domains and do not challenge each other over those
domains.
b. two or more firms compete against one another in pursuit of an advantageous market
position.
c. two or more firms compete against international firms in pursuit of the world’s dominant
market position.
d. a firm is willing to accept its market position without regard to its competitors’ intentions.
ANS: B PTS: 1 DIF: hard REF: p. 173
3. Multimarket competition occurs when firms:

a. sell different products to the same customer.
b. have a high level of awareness of their competitors’ strategic intent.
c. simultaneously enter into an attack strategy.
d. compete against each other in several geographic or product markets.
ANS: D PTS: 1 DIF: med REF: p. 173
4. In the global economy, rivalry is intensifying. Consequently:

a. dominant cultures are overwhelming those of emerging nations, making cultural diversity
an issue mainly among developed nations.
b. it is becoming more likely that industrialized nations will continue to dominate world
markets, overwhelming emerging countries.
c. strong brand names are especially important in opening new markets.
d. only companies with cost-leadership strategies have a competitive advantage.
5. Intensified rivalry within an industry results in ____.

a. increased hiring across the industry
b. increased total revenues across the industry
c. decreased average profitability across the industry
d. increased entries into the industry
ANS: C PTS: 1 DIF: med REF: p. 174
6. A method of reducing competitive rivalry may be to reduce the firm’s market commonality with other
firms by doing all EXCEPT which of the following?
a. competing in a different geographic market
b. competing in a different product segment
c. competing in a different market segment
d. competing in a different labor market
ANS: D PTS: 1 DIF: hard REF: p. 177
7. Two companies that share markets, but who have little similarity in their resources are ____.
a. direct, mutually-acknowledged competitors
b. neither direct nor mutually-acknowledged competitors
c. competitors who are probably not engaged in intense rivalry
d. competitors who have reached mutually-sustainable competitive advantage
8. ____ relates to the incentives a firm has to attack a rival or to respond if attacked.
a. Motivation c. Responsiveness
b. Awareness d. Ability
ANS: A PTS: 1 DIF: med REF: p. 179
9. Both ____ and ____ affect the awareness and motivation of a firm to undertake actions and responses.
a. first mover advantages, corporate size
b. market commonality, resource similarity
c. management capabilities, competitive analysis
d. speed of management decisions, management actions
10. The larger the resource imbalance between the firm taking the competitive action and the other firms
in the industry, the ____ of these other firms.
a. more fragmented the response will be
b. the slower the response will be
c. the larger the response will be
d. more tactical the response will be
ANS: B PTS: 1 DIF: med REF: p. 180
11. First movers are:

a. individuals who lead in the establishment of new industries.
b. firms that are first to exit an industry that begins to enter a decline stage.
c. firms that take an initial competitive action.
d. individuals who move frequently as employment opportunities change in a locale.
12. The chief disadvantages of being a first mover is:

a. the high degree of risk.
b. the high level of competition in the new marketplace.
c. an inability to sustain a sustained competitive advantage.
d. the difficulty of obtaining new customers.
13. A second mover is a (an):

a. firm that responds to a first mover’s competitive action, often through imitation.
b. firm that leads a competitive action in an industry.
c. individual who imitates others in an industry to ensure the progress of his/her career.
d. individual who moves from a declining industry to a new expanding industry.
14. A benefit of being a second mover is:

a. an absence of the need to be the largest firm in the industry.
b. that a firm may be able to respond to first movers’ competitive actions while avoiding the
risks and development costs experienced by the first movers.
c. the absence of any risk.
d. the ability to lead the industry into new areas of product development and gain customer
loyalty from its move.
15. Late movers are those firms:

a. that do respond to a competitive action but only after considerable time has elapsed after
the first mover’s action and the second mover’s response.
b. that respond to a first mover’s competitive action often through imitation or a move
designed to counter the effects of the action.
c. that take an initial competitive action (either strategic or tactical).
d. that stay in a declining industry.
16. All competitive advantages do not accrue to large-sized firms. A major advantage of smaller firms is
that ____.
a. they are more likely to have organizational slack
b. they can launch competitive actions more quickly
c. they have more loyal and diverse workforces
d. they can wait for larger firms to make mistakes in introducing innovative products
17. Which firm’s competitive actions are most likely to elicit response and imitation?
a. Firms that have a history as a strategic player that takes risky actions
b. Firms that have a history of complex and unpredictable actions
c. Firms that are price predators
d. Firms that are market leaders
18. Quality involves:

a. either meeting or exceeding customer expectations in the goods and/or services offered.
b. meeting the standards established by ISO 9000.
c. an assured way to gain competitive advantage.
d. an association only with differentiation strategies.
19. Quality is ____ strategic competitiveness.

a. necessary for c. sufficient for
b. negatively related to d. not associated with
20. Which of the following is NOT an accurate statement with respect to quality? Quality is:
a. a universal theme in the global economy.
b. a necessary but not sufficient condition for competitive success.
c. in existence when a firm’s goods or services meet or exceed customers’ expectations.
d. possible when customers support it.
21. Because Hyundai Motor Company was instituting a drive for manufacturing quality in 1999,
competitors could predict ____.
a. that Hyundai viewed quality as a sufficient condition for success
b. that Hyundai was consuming its organizational slack and would encounter financial
problems
c. that Hyundai would not simultaneously launch aggressive competitive actions
d. that Hyundai was building for a first-mover advantage
22. A competitive response is a (an):

a. move taken to counter the effects of an action taken by a competitor.
b. move taken to initiate a strategic change in an industry.
c. ineffective action for a firm to pursue.
d. military concept that does not apply to business.
23. As compared to strategic actions, tactical actions usually have a:

a. more delayed effect.
b. greater effect on the overall corporate strategy.
c. well-timed effect on the firm’s corporate strategy.
d. more immediate effect.
24. Which of the following would be an example of a strategic action?

a. Price cuts by Blockbuster Video
b. Use of product coupons by a local grocer
c. Entry into the European market by Wal-Mart
d. Price increases by Continental Airlines
25. Firms with few competitive resources are more likely to:
a. refuse to respond to competitive actions.
b. respond to all competitive actions.
c. respond to tactical actions.
d. respond to strategic actions.
26. On the whole there are more competitive responses to:

a. strategic actions than to tactical actions.
b. tactical actions than to strategic actions.
c. buyer pressures than to supplier pressures.
d. the demands of the top management team than to industry structural pressures.
27. Companies initiate more competitive responses to ____ actions than to ____ actions.
a. tactical, strategic
b. strategic, tactical
c. business-level strategic, corporate-level strategic
d. business-level strategic, operating-level strategic
ANS: A PTS: 1 DIF: hard REF: p. 186
28. Competitors are more likely to respond to competitive actions that are taken by ____.
a. differentiators c. first movers
b. larger companies d. market leaders
29. Walt Disney’s focus on ____ is typical of a slow-cycle market.
a. innovation c. proprietary rights
b. total quality d. economies of scale
30. A company in a ____ is most likely to make heavy use of patents and copyrights.
a. slow cycle c. standard cycle
b. medium cycle d. fast cycle
31. Sustained competitive advantage is most achievable in a ____ market.

a. slow-cycle c. standard-cycle
b. medium-cycle d. fast-cycle
32. Goods or services in slow-cycle markets reflect:

a. organizations that serve a mass market.
b. numerous first mover advantages.
c. an inability to sustain a competitive advantage for long periods of time.
d. competitive advantages that are shielded from imitation.
33. Reverse engineering is characteristic of ____.

a. first movers. c. total quality management.
b. fast-cycle markets. d. cost-leadership strategies.
34. Which of the following is an example of an organization considered to be in a standard-cycle market?

a. Boeing’s airplanes
b. Procter & Gamble
c. Caterpillar’s large-scale equipment
d. McIlhenny’s Tabasco Sauce
35. Firms will be more loyal to their products in a ____ market than in the other types of markets.
a. standard cycle c. slow cycle
b. fast cycle d. medium cycle
36. In order to compete effectively, standard-cycle firms need ____.

a. organizational slack c. first mover capability
b. economies of scale d. total quality
37. Strategic actions elicit fewer competitive responses than tactical actions for all of the following
reasons EXCEPT:
a. Strategic responses involve a significant c. Strategic responses are easy to implement
commitment of resources. and reverse.
b. The time needed for a strategic action to d. The time needed to assess the
be implemented delays the competitor’s effectiveness of strategic actions delays
response. the competitor’s response.
38. Innovation has a dominant effect on competitive dynamics in ____ markets.

a. slow-cycle c. fast-cycle
b. standard-cycle d. all competitive
ESSAY
1. What is market commonality?
ANS:
In general, competitors agree about the different characteristics of the individual markets that make up
an industry. Most industries’ markets are somewhat related in terms of technologies used or core
competencies needed to develop a competitive advantage. Market commonality is concerned with the
number of markets with which the firm and a competitor are jointly involved and the degree of
importance of the individual markets to each.
PTS: 1 REF: p. 176|p. 177 OBJ: 2
2. What is resource similarity?
ANS:
Resource similarity is the extent to which the firm’s tangible and intangible resources are comparable
to a competitor’s in terms of both type and amount. Firms with resource similarity are likely to have
similar strengths and weaknesses and to use similar strategies. Assessing resource similarity can be
difficult, particularly when critical resources are intangible, rather than tangible.
PTS: 1 REF: p. 177|p. 178 OBJ: 2
3. Define awareness, motivation, and ability in reference to competitive behavior.
ANS:
Awareness, motivation and ability are the drives of competitive behavior. Awareness is the extent to
which competitors recognize the degree of their mutual interdependence that results from market
commonality and resource similarity. Awareness affects the extent to which the firm understands the
consequences of its competitive actions and responses. Motivation concerns the firm’s incentive to
take action or to respond to a competitor’s attack. If the firm does not believe a competitor’s action
will result in losses for it, it will not have motivation to respond. Ability relates to each firm’s
resources and the flexibility these resources provide. When a firm faces a competitor with similar
resources, careful study of a possible attack is essential because a competitor with similar resources is
likely to respond to competitive attack.
PTS: 1 REF: p. 179|p. 180 OBJ: 3
4. What are the advantages and disadvantages of being a first mover, second mover, and late mover?
ANS:
First movers can gain market share and customer loyalty by being the first in the market. First movers
also take more risks. However, first movers often are higher performers. Second movers, particularly
those that are larger and faster, can also gain a competitive advantage and/or earn at least average
returns because they imitate, but avoid much of the risk that first movers experience. In fact, some
second movers may gain significant market share and outperform the first movers. They do so when
they carefully observe the market’s reaction and are able to improve the product introduced by the first
mover and correct its mistakes. Late movers (those that respond a long time after the original action
was taken) tend to be lower performers and much less effective.
PTS: 1 REF: p. 182p. 183 OBJ: 4
5. What factors contribute to the likelihood of a response to a competitive action?
ANS:
A firm is more likely to respond when the competitor’s action is tactical, rather than strategic.
Strategic actions involve a significant commitment of resources and are difficult to implement and
reverse, as well as requiring time to put into place. A firm is also more likely to respond to a
competitor’s action when the competitor is the market leader. Successful actions by competitors are
likely to be quickly imitated, even if not initiated by a market leader. Finally, competitors with high
market dependence are likely to respond strongly to attacks threatening their market position.
PTS: 1 REF: p. 185|p. 188 OBJ: 5
6. Name and describe the two types of competitive actions.
ANS:
This refers to strategic and tactical actions. Strategic actions take more time to implement, require
many specific resources, and are difficult to reverse. By implication, tactical actions tend to be quicker
to implement, require fewer resources, and can be reversed more easily. Strategic actions tend to
receive strategic responses. Tactical actions tend to receive tactical responses. Strategic actions elicit
fewer total competitive responses than do tactical actions. Responses to strategic actions will be slower
than will responses to tactical actions.
PTS: 1 REF: p. 186 OBJ: 5
7. Define slow-cycle, fast-cycle, and standard cycle markets.
ANS:
In slow-cycle markets the firm’s competitive advantage is shielded from imitation for long periods of
time and imitation is costly. Competitive advantages are sustainable in slow-cycle markets. Successful
firms in slow-cycle markets have difficult-to-understand and costly-to-imitate advantages resulting
from unique historical conditions, causal ambiguity and/or social complexity. In fast-cycle markets
imitation happens quickly and somewhat inexpensively. Competitive advantages are not sustainable.
Reverse engineering and quick technology diffusion facilitate rapid imitation. In fast-cycle markets,
innovation is critical and firms avoid “loyalty” to any product. Firms must focus on rapidly and
continuously developing new competitive advantages. In standard-cycle markets, the firm’s
competitive advantages are moderately shielded for imitation and imitation is moderately costly.
Competitive advantages are partially sustainable if the firm can continuously upgrade the quality of its
competitive advantage. Typically, these markets have large firms seeking high market share, striving
for customer brand loyalty, and controlling their operations to give customers consistent experiences.
Economies of scale are necessary for survival.
PTS: 1 REF: p. 188|p. 193 OBJ: 6

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Competing for Advantage 3rd Edition Hoskisson Solutions

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Essentials of Strategic Management The Quest for

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International Business Competing in the Global

ANS: T PTS: 1 DIF: med REF: p. 173

ANS: F PTS: 1 DIF: med REF: p. 173

ANS: F PTS: 1 DIF: med REF: p. 174

ANS: T PTS: 1 DIF: med REF: p. 174

ANS: T PTS: 1 DIF: hard REF: p. 176

ANS: F PTS: 1 DIF: med REF: p. 176

ANS: F PTS: 1 DIF: hard REF: p. 176

8. Market commonality increases the likelihood of competitive interaction in an industry.

ANS: F PTS: 1 DIF: med REF: p. 177

ANS: T PTS: 1 DIF: med REF: p. 177

ANS: T PTS: 1 DIF: hard REF: p. 173|p. 177

ANS: F PTS: 1 DIF: hard REF: p. 178

ANS: F PTS: 1 DIF: hard REF: p. 180

ANS: F PTS: 1 DIF: med REF: p. 180

ANS: F PTS: 1 DIF: med REF: p. 182

ANS: T PTS: 1 DIF: hard REF: p. 183

ANS: T PTS: 1 DIF: med REF: p. 183|p. 184

ANS: T PTS: 1 DIF: med REF: p. 185

ANS: F PTS: 1 DIF: med REF: p. 185

20. High quality increases costs which damages profitability.

ANS: F PTS: 1 DIF: med REF: p. 185

ANS: F PTS: 1 DIF: hard REF: p. 186

ANS: F PTS: 1 DIF: hard REF: p. 186

ANS: F PTS: 1 DIF: hard REF: p. 186

ANS: T PTS: 1 DIF: med REF: p. 187

ANS: T PTS: 1 DIF: med REF: p. 188

ANS: T PTS: 1 DIF: med REF: p. 191|p. 192

ANS: F PTS: 1 DIF: med REF: p. 191|p. 192

28. Competitive advantages are not sustainable in fast-cycle markets.

ANS: T PTS: 1 DIF: med REF: p. 193

ANS: F PTS: 1 DIF: med REF: p. 188

1. Competitive dynamics refers to a series of:

2. Competitive rivalry exists ONLY when:

3. Multimarket competition occurs when firms:

4. In the global economy, rivalry is intensifying. Consequently:

5. Intensified rivalry within an industry results in ____.

11. First movers are:

12. The chief disadvantages of being a first mover is:

13. A second mover is a (an):

14. A benefit of being a second mover is:

15. Late movers are those firms:

18. Quality involves:

19. Quality is ____ strategic competitiveness.

22. A competitive response is a (an):

23. As compared to strategic actions, tactical actions usually have a:

24. Which of the following would be an example of a strategic action?

26. On the whole there are more competitive responses to:

31. Sustained competitive advantage is most achievable in a ____ market.

32. Goods or services in slow-cycle markets reflect:

33. Reverse engineering is characteristic of ____.

34. Which of the following is an example of an organization considered to be in a standard-cycle market?

36. In order to compete effectively, standard-cycle firms need ____.

38. Innovation has a dominant effect on competitive dynamics in ____ markets.

1. What is market commonality?