Exam 9: Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing

Which of the following is NOT a cause for the intervention of antitrust authorities?

A company should first choose a corporate-level strategy, and then look at how changes will affect a company's current business model and strategies.

Under which of the following circumstances is vertical integration considered hazardous?

The main difference between an acquisition and a merger is that an acquisition establishes a new entity.

Strategic alliances and outsourcing are two alternatives to vertical integration. What are the advantages and disadvantages of each compared to vertical integration? What can managers do to eliminate or reduce the risks?

In order to achieve the increased profitability that horizontal integration can offer, the only area integration must be successful in is reducing rivalry within the industry.

Company A has made substantial investments in specialized assets and, in theory, because of this investment, has become dependent on Company B. Company B can threaten to change orders to other suppliers as a way of driving down Company A's prices. Company B is highly unlikely to change suppliers because it is, in turn, a major supplier to Company A and also has made major investments in specialized assets to serve their needs. These companies are mutually dependent because of the specialized investment the other has made. Thus, Company B is unlikely to renege on any pricing agreements with because it knows that Company A would respond the same way. This is an example of which of the following?

The difference between transfer prices and bureaucratic costs is that transfer prices are associated with in-house cost increases and bureaucratic costs are not part of a company's cost structure.

One negative effect of competitive bidding is that suppliers don't want to invest in expensive, long-term specialized assets as they will be reluctant to agree upon scheduling that will increase a supplier's costs and reduce its profitability.

Companies invest in specialized assets because these assets allow them to:

Transfer pricing refers to when a company is taken advantage of by another company it does business with after it has made an investment in expensive specialized assets to better meet the needs of the other company.