CH14_Answer(1) - Chapter 14 Vertical Integration and the...

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Chapter 14 Vertical Integration and the Scope of the Firm Test Bank True/False Questions 1. Corporate strategy is concerned with “how” a firm competes, whereas business strategy is concerned with “where” a firm competes False Page: p348 2. Product scope, geographical scope, and vertical scope are part of corporate level strategy decisions True Page: p348 3. Market mechanisms and administrative mechanisms are two forms of economic organization True Page: p349-351 4. Market mechanism and administrative mechanisms are sometimes respectively called “invisible hand” and “visible hand” True Page: p349-351 5. Transaction costs are the costs incurred by the parties involved in a market mechanism situation, such as search costs, costs of negotiation of contracts, enforcement costs of arbitration or litigation, and the costs of monitoring the fulfillment of parties’ obligations True Page: p349-351 6. Vertical integration can be forward or backward True Page: p354 7. The fundamental explanation of vertical integration relies on the existence of transaction-specific investments at the interface of two firms’ activities. These transaction-specific investments lead to a situation where hierarchy is the best framework to maximize the efficiency of these two firms, by integrating them inside a single organization True Page: p354 © 2010 Robert M. Grant www.contemporarystrategyanalysis.com 1
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Multiple Choice Questions 1. Corporate strategy is concerned with: a. The scope of a firm’s products b. The scope of a firm’s activities c. The scope of a firm’s structure and corporate governance system d. The “how” to compete Page: p348 2. What is the difference between a firm’s geographical scope and its vertical scope? a. The first describes the regions of the world and the second the stages of the industry value chain where the firm is present b. The first describes the number of countries and the second the number of horizontal businesses where the firm is present c. There is no difference d. This question does not make sense Page: p348 3. The two main forms of economic organization are: a. The firm and the market b. The administration by the state and the free market c. The visible hand and the pressure from politicians d. The invisible hand of the market and micro- economic mechanisms Page: p349-351 4. According to R. Coase, which factor determines the form of organization that will result, i.e. market or hierarchy? a. Transaction costs
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CH14_Answer(1) - Chapter 14 Vertical Integration and the...

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