Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

30 Cards in this Set

  • Front
  • Back

A firm has implemented a strategy of limited corporate diversification when all or most of its
business activities fall within a single industry and geographic market.


Shared activities can increase the revenues in diversified firms' businesses, and failure to exploit shared activities across businesses can lead to out-of-control costs.


A firm's dominant logic is a common way of thinking about strategy across different businesses.


The businesses within a diversified firm always gain cost-of-capital advantages by being part of
a diversified firm's portfolio.


The only two economies of scope that do not have the potential for generating positive returns
for a firm's equity holders are diversification in order to maximize the size of a firm and
diversification to reduce risk.


When the value of the products or services a firm sells increases as a function of the number of business that the firm operates in, ________ are said to exist.
A) vertical economies B) diseconomies of scope
C) economies of scope D) economies of scale

C) economies of scope

Currently, most scholars believe that exploiting economies of scope through corporate
diversification, on average,
A) destroyed about 25% of a firm's market value.
B) had no impact on a firm's market value.
C) increased a firm's market value.
D) destroyed about 55% of a firm's market value.

C) increased a firm's market value.

If all of a firm's businesses share the same core competencies, then that firm has implemented a
strategy of ________ diversification.
A) dominant-business B) related-linked
C) related-constrained D) single-business

C) related-constrained

________ exists when two or more diversified firms simultaneously compete in multiple
A) Multipoint cooperation

B) Dynamic cooperation
C) Multipoint competition

D) Dynamic competition

C) Multipoint competition

When diversified firms use the revenues from profitable businesses to subsidize the operations
of another business and then set the prices of the subsidized firm's products at a level that is
below the subsidized business's cost to produce these items, this is known as ________ pricing.
A) beneficial B) predatory

C) dynamic D) monopoly

B) predatory

Tacit collusion exists when firms coordinate their pricing decisions not by directly
communicating with each other but by exchanging signals with other firms about their intent to


When potential cooperative partners misrepresent the skills, abilities, and other resources that they will bring to an alliance, this is a form of cheating known as adverse selection.


Moral hazard occurs when partners in an alliance possess high-quality resources and
capabilities of significant value in an alliance but fail to make those resources and capabilities
available to alliance partners.


Research on international joint ventures suggests that the existence of transaction-specific investments in their relationships makes these agreements relatively immune to holdup


When there is low uncertainty about the future value of an exchange, an alliance will be
preferred to going it alone.


A(n) ________ exists whenever two or more independent organizations cooperate in the
development, manufacture, or sale of products or services.
A) strategic alliance B) vertical market
C) initial public offering D) market transaction

A) strategic alliance

A firm's ability to learn is known as its
A) competitive advantage.

B) absorptive capacity.
C) distinctive competence.

D) competitive position.

B) absorptive capacity.

Strategic alliances are particularly valuable in facilitating market entry and exit when the value
of market entry or exit is
A) high.

B) moderate.

C) low.

D) uncertain.

D) uncertain.

Consistent with a real options perspective, firms in new and uncertain environments are likely to
A) engage in vertical integration.

B) develop few strategic alliances.
C) avoid using strategic alliances.

D) develop numerous strategic alliances

D) develop numerous strategic alliances

Adverse selection in a strategic alliance is likely only when

A) it is difficult or costly to know how competitors will react to the strategic alliance.
B) it is difficult or costly to observe the resources or capabilities that a partner brings to an alliance.
C) a potential partner can easily see the resources and capabilities that a firm is bringing to an alliance.
D) there are significant transaction-specific assets devoted to the alliance.

B) it is difficult or costly to observe the resources or capabilities that a partner brings to an alliance.

To be economically valuable, links between bidding and target firms must meet the same criteria as diversification strategies.


One of the main reasons why bidding firms do not obtain competitive advantages from
acquiring strategically related target firms is that several other bidding firms value the target
firm the same way


Strategy researchers have found that in mergers and acquisitions, the more strategically related
bidding and target firms are, the more economic value these mergers and acquisitions create.


When acquiring a publicly traded firm a bidder has to release all the information it has about the potential value of that target in combination with itself.


The market for corporate control is the market that is created when multiple firms actively seek
to acquire one or several firms.


The difference between the current market price of a target firm's shares and the price a potential
acquirer offers to pay for those shares is known as an
A) acquisition margin. B) acquisition premium.
C) acquisition discount. D) acquisition price

B) acquisition premium

Which of the following is a source of diversification economies?
A) Marketing B) Production
C) Scheduling D) Portfolio management

D) Portfolio management

________ economies are achieved by the ability of firms to dictate prices by exerting market
A) Production B) Diversification
C) Pecuniary D) Technical

C) Pecuniary

Which one of the following is not one of the reasons that Jensen and Ruback listed as to why bidding firms might want to engage in merger and acquisition strategies?
A) To expand individual managers' power within an organization
B) To eliminate inefficient target management
C) To reduce production or distribution costs
D) To gain market power in product markets

A) To expand individual managers' power within an organization

Wealthy individuals who provide capital to entrepreneurs to help them grow their businesses are known as
A) CEOs. B) stockholders.
C) venture capitalists. D) business angels.

D) business angels.