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Corporate Strategy: Vertical Integration And Diversification

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Question 1
Free
Multiple Choice

Amazon.com has decided to enter the college bookstore market.The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia,such as logo sweaters and baseball hats.This development shows Amazon's relentless pursuit of

Choose correct answer/s
A

geographic diversification.

B

product diversification.

C

vertical integration.

D

horizontal integration.

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Question 2
Free
Multiple Choice

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's

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A

level of diversification.

B

geographic scope.

C

vertical integration.

D

absorptive capacity.

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Question 3
Free
Multiple Choice

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

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A

the first-line employees

B

the creditors

C

the chief executive officer

D

the middle manager

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Question 4
Free
Multiple Choice

Which of the following statements is true of transaction costs?

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A

When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.

B

When companies transact in the open market, they incur internal transaction costs.

C

Transaction costs exclusively consist of external costs associated with economic exchanges.

D

Transaction costs are necessary to explain and predict the boundaries of a firm.

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Question 5
Free
Multiple Choice

Which of the following is an example of an external transaction cost?

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A

the cost of setting up a production unit

B

the cost of searching for a contract manufacturer

C

the cost of recruiting and retaining employees

D

the cost of maintaining plant and machinery

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Question 6
Multiple Choice

Which of the following is an example of an internal transaction cost?

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A
the cost of searching for a contract manufacturer
B
the cost of signing a contract with a supplier
C
the cost of buying raw materials
D
the cost of maintaining a production unit
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Question 7
Multiple Choice

Which of the following statements is true of internal transaction costs?

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A
Internal transaction costs arise when companies transact in the open market.
B
When the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate.
C
Internal transaction costs tend to increase with organizational size and complexity.
D
It is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low.
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Question 8
Multiple Choice

A primary advantage of organizing economic activity within firms is the

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A
ability to coordinate highly complex tasks to allow for specialized division of labor.
B
low administrative costs because of reduced bureaucracy.
C
eradication of the principal-agent problem.
D
high-powered incentive to work as salaried employees for an existing firm.
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Question 9
Multiple Choice

Grace Apparel Inc.has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities.How will this decision affect the firm?

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A
The firm will be protected against the principal-agent problem.
B
The firm's administrative costs will be low because of necessary bureaucracy.
C
The firm will have more flexibility in purchasing and comparing prices of goods and services.
D
The firm will have high-powered incentives, such as hourly wages and salaries.
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Question 10
Multiple Choice

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests.What does this best illustrate?

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A
diseconomies of scale
B
principal-agent problem
C
experience-curve effects
D
information asymmetries
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Question 11
Multiple Choice

The most efficient way to overcome the principal-agent problem in a firm is to

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A
increase the level of vertical integration within the firm.
B
provide stock options to managers.
C
downsize the existing workforce.
D
organize economic activities within the firm.
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Question 12
Multiple Choice

_____ is best described as a situation in which one party is more informed than another,because of the possession of private information.

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A
Information governance
B
Information asymmetry
C
Information deregulation
D
Information piracy
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Question 13
Multiple Choice

In the market for used cars,which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

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A
experience-curve effects
B
time compression diseconomies
C
principal-agent problem
D
information asymmetry
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Question 14
Multiple Choice

Chao is in an interview for a sales job that requires no experience.He is trying to portray himself as a highly enthusiastic,energetic person with high-level communication and interpersonal skills.The interviewer is convinced that Chao should be hired as a salesperson in the company.However,in his resume,Chao had not mentioned his previous work experience as he was fired from that job because he used illegal drugs.Which of the following does this scenario best illustrate?

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A
information asymmetry
B
principal-agent problem
C
experience-curve effect
D
learning-curve effect
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Question 15
Multiple Choice

When approaching a bank for a loan,the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting.What is this situation referred to as?

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A
principal-agent problem
B
information asymmetry
C
experience-curve effect
D
learning-curve effect
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Question 16
Multiple Choice

A drawback of short-term contracting as an alternative to making a component in-house is that

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A
it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.
B
the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
C
it fails to allow a long planning period that individual market transactions provide.
D
the buying firm cannot demand lower prices due to the lack of a competitive bidding process.
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Question 17
Multiple Choice

Which of the following firms is least integrated?

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A
a firm that enters a joint venture with another company to develop a new technology
B
a firm that owns production subsidiaries across the globe
C
a firm that makes equity investments in its supplier's company
D
a firm that buys all the required raw materials from multiple external vendors
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Question 18
Multiple Choice

_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge,resources,and capabilities with the intent of developing processes,products,or services to lead to competitive advantage.

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A
Embargos
B
Cartel agreements
C
Strategic alliances
D
Corporate acquisitions
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Question 19
Multiple Choice

_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

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A
Lean manufacturing
B
Licensing
C
Crowdsourcing
D
Bootlegging
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Question 20
Multiple Choice

Hitoro Inc.developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time.The technology was leased to Revox Inc.,a consumer electronics company,for five years.Which of the following alternatives to integration does this best illustrate?

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A
licensing
B
franchising
C
crowdsourcing
D
bootlegging
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