Deck 9: Strategic Commitment

Question 1

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?

A)Tough commitment
B)Strategic complement
C)Soft commitment
D)Strategic substitute
E)Duopoly

Answer 1

D

Question 2

What type of option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future?

A)Real option
B)Commitment option
C)Project option
D)Decision option
E)Future option

Answer 2

A

Question 3

Which of the following statements is true about a tough commitment?

A)It is good for competitors
B)It is bad for competitors
C)In Cournot competition, elimination of production facilities is an example of a tough commitment
D)In Betrand competition, a commitment to increase prices is an example of a tough commitment
E)Tough commitments are always in the best interest of a firm

Answer 3

B

Question 4

What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing potential responses to the commitment by competitors and potential entrants in light of the commitments that they have made and the impact of those responses on competition?

A)Positioning analysis
B)Sustainability analysis
C)Flexibility analysis
D)Judgment analysis
E)Final Commitment analysis

Question 5

Which of the following statements is true about a soft commitment?

A)It is bad for competitors
B)It is good for competitors
C)In Cournot competition, capacity expansion is an example of a soft commitment
D)In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E)Tough commitments are always in the best interest of a firm

Question 6

Which of the following characteristics must be satisfied for a commitment by one firm to generate the desired response from its competitors?

A)It must be visible
B)It must be understandable
C)It must be credible
D)a & c
E)All of the above

Question 7

Which of the following statements is true in general about firm actions that are strategic substitutes?

A)Reaction functions are downward sloping & the more of the action one firm chooses, the more of the action the other firm chooses
B)Reaction functions are downward sloping & the less of the action one firm chooses, the less of the action the other firm chooses
C)Reaction functions are upward sloping & the more of the action one firm chooses, the more of the action the other firm chooses
D)Reaction functions are upward sloping & the less of the action one firm chooses, the less of the action the other firm chooses
E)In the Cournot model, quantities are strategic substitutes

Question 8

What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing whether the firm's commitment is likely to result in a product market position in which the firm delivers superior benefits to consumers or operates with lower costs than competitors?

A)Positioning analysis
B)Sustainability analysis
C)Flexibility analysis
D)Judgment analysis
E)Final Commitment analysis

Question 9

Which of the following statements is true in general about firm actions that are strategic complements?

A)Reaction functions are downward sloping & the more of the action one firm chooses, the more of the action the other firm chooses
B)Reaction functions are downward sloping & the less of the action one firm chooses, the less of the action the other firm chooses
C)Reaction functions are upward sloping & the more of the action one firm chooses, the more of the action the other firm chooses
D)Reaction functions are upward sloping & the less of the action one firm chooses, the less of the action the other firm chooses
E)In the Cournot model, quantities are strategic complements

Question 10

What type of effect describes the competitive side effects of the commitment that alter the tactical decisions of rivals and,ultimately,the market equilibrium?

A)Tactical effect
B)Financial effect
C)Direct effect
D)Strategic effect
E)Indirect effect

Question 11

Which of the following commitment strategies involves soft commitment postures,strategic complements for the stage 2 tactical variables,a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader?

A)Top Dog
B)Lean and Hungry Look
C)Mad Dog
D)Puppy-Dog Ploy
E)Fat-Cat Effect

Question 12

What is the most likely reason a firm would pursue the "mad-dog" commitment strategy of making a tough commitment when tactical variables are strategic complements,a strategy with harmful strategic effects?

A)For deterrence of new entrants by creating capacity competition
B)To exploit intangible weaknesses of other firms
C)To test the response of other market firms
D)For deterrence of new entrants by increasing price competition
E)They are following another firm

Question 13

Which of the following commitment strategies involves tough commitment postures,strategic substitutes for the stage 2 tactical variables,a make commitment action and an assertion of dominance forcing rivals to back off?

A)Top Dog
B)Lean and Hungry Look
C)Mad Dog
D)Puppy-Dog Ploy
E)Fat-Cat Effect

Question 14

Given the following payoff diagram:
How much can firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?

A)5
B)10
C)15
D)20
E)20

Question 15

What key element of a competitive move adds credibility to a making it a "true" commitment?

A)Fund raising
B)Public announcement
C)Relatedness factor
D)Irreversibility
E)Capacity expansion

Question 16

What type of effect describes how a commitment impacts the present value of the firm's profits,assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?

A)Tactical effect
B)Financial effect
C)Direct effect
D)Strategic effect
E)Indirect effect

Question 17

What process involves using computer simulations to track the likely competitive implications of pricing and investment decisions over many years?

A)Regression testing
B)Virtual reality
C)War gaming
D)Commitment testing
E)Scenario testing

Question 18

What term describes a decision that has a long-term impact and is difficult to reverse?

A)Dedicated investment
B)Strategic commitment
C)Critical choice
D)Market investment
E)Firm commitment

Question 19

What type of contractual clause in a sales contract with a buyer provides a provision such that the seller is obligated to extend the same price terms to the buyer that it extends to other customers?

A)Indemnification clause
B)Most favored customer clause (MFCC)
C)Escape clause
D)Money back guarantee
E)Meet the competition clause (MCC)

Question 20

What tactical term best describes the pricing relationship between Toyota and Honda such that Toyota's response is to lower the price on the Camry if Honda were to first announce a large price cut on the Accord?

A)Tough commitment
B)Strategic complement
C)Soft commitment
D)Strategic substitute
E)Duopoly

Question 21

Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?

Question 22

Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,what is the firm's expected net present value of the investment?

Question 23

Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,how much has the firm increased its NPV over if it had been forced to make the investment decision solely on the basis of its current,uncertain assessment of demand?

Question 24

Which of the following is a way that Airbus significantly enhanced the credibility of its commitment to enter super jumbo jet market?

A)By announcing entrance into the market
B)By entering a market they had not been in previously
C)By projecting changes in air travel included increased congestion in the traditional hub-and-spoke system
D)By war gaming how the A380 would accommodate growing numbers of passengers and relive airport slot congestion
E)By securing over 60 early orders for the Airbus A380

Question 25

What step of Ghemawat's framework for analyzing commitment intensive choices involves taking stock of the organizational and managerial factors that might distort the firm's incentive to choose an optimal strategy?

A)Positioning analysis
B)Sustainability analysis
C)Flexibility analysis
D)Judgment analysis
E)Final Commitment analysis