Finance

Q: In an alliance a holdup occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.

Q: The existence of moral hazard in a strategic alliance proves that at least one of the parties is either malicious or dishonest.

Q: 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.

Q: In general, the less tangible the resources and capabilities that are to be brought to a strategic alliance, the less costly it will be to estimate their value before an alliance is created and the more likely it is that adverse selection will occur.

Q: 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.

Q: Research shows that as many as two-thirds of strategic alliances do not meet the expectations of at least one alliance partner.

Q: In new and uncertain environments it is not unusual for firms to develop numerous strategic alliances.

Q: When information asymmetry exists between firms that currently own assets and firms that may want to purchase these assets, the selling firm will often have difficulty obtaining the full economic value of these assets.

Q: Alliances to facilitate entry into new industries are only valuable when the skills needed in these industries are complex and difficult to learn.

Q: Research shows that joint ventures between firms in the same industry may have collusive implications and that these kinds of joint ventures are relatively common.

Q: A learning race exists in a strategic alliance when both parties seek to learn from each other.

Q: 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 cooperate.

Q: Explicit collusion exists when firms directly communicate with each other to coordinate their levels of production or their prices and is legal in most countries.

Q: In network industries with increasing returns to scale where standards are unimportant, strategic alliances can be used to create a more favorable competitive environment.

Q: Learning race dynamics are particularly common in relations among large, well-established firms.

Q: Firms with high levels of absorptive capacity will learn at faster rates than firms with low levels of absorptive capacity, even if these two firms are trying to learn exactly the same things in an alliance.

Q: Network industries are characterized by decreasing returns to scale.

Q: When both parties to an alliance are seeking to learn something from that alliance, a learning race can evolve.

Q: In general, due to the intangible nature of knowledge, firms are not able to use alliances to learn from their competitors.

Q: When a firm cannot realize the cost savings from economies of scale all by itself, it may join in a strategic alliance with other firms so that together both firms will have sufficient volume to be able to gain the cost advantages of economies of scale.

Q: In an equity alliance, cooperating firms supplement contracts with equity holdings and alliance partners.

Q: In a nonequity alliance, firms create a legally independent firm in which they invest and from which they share any profits that are created.

Q: A strategic alliance exists whenever three or more independent organizations cooperate in the development, manufacture, or sale of products or services.

Q: The use of strategic alliances to manage economic exchanges has grown substantially over the last several years.

Q: What is the connection between strategic alliances and real options?

Q: Describe five tools that firms can use to reduce the threat of cheating in strategic alliances.

Q: Discuss to what extent acquisitions can be a substitute for alliances and identify four conditions under which alliances will be preferred to acquisitions.

Q: Discuss when firms go it alone and identify three conditions under which alliances will be preferred to going it alone and when going it alone is not an attractive substitute for an alliance.

Q: Discuss when strategic alliances may be costly to directly duplicate.

Q: Identify the conditions under which a strategic alliance can be rare and discuss the role that complementary resources can play in the rarity of strategic alliances.

Q: Define the three fundamental forms of cheating in strategic alliances and discuss the short- and long-term implications of cheating in a strategic alliance.

Q: Discuss the concept of a learning race and identify three reasons why firms in an alliance may differ in the rate they learn from each other.

Q: Identify and discuss the three ways alliances can create economic value by helping firms improve the performance of their current operations.

Q: Define a strategic alliance and identify and differentiate between three broad categories of strategic alliances.

Q: eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp. Which of the following reasons helps explain why eBay may have preferred to enter into an alliance to enter the Korean online auction industry rather than going it alone? A) eBay's Korean partner possesses capabilities that are valuable and rare but not costly to imitate. B) The level of transaction-specific investments required to enter the Korean online auction industry is low. C) There is little uncertainty about the future of the Korean online auction industry. D) The level of transaction-specific investments required to enter the Korean online auction industry is moderate.

Q: eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp. If eBay's Australian partner agreed to provide marketing and technological skills to help eBay compete in the Australian and New Zealand auction industries but provided skills that were significantly lower than promised, this would be an example of A) holdup. B) moral hazard. C) adverse selection. D) tacit collusion.

Q: eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp. If, prior to entering the cooperative agreement with eBay, eBay's Korean partner stated that it had the technological capabilities to facilitate eBay's Korean auction business when, in fact, the Korean company did not have these capabilities, this would be an example of A) adverse selection. B) explicit collusion. C) moral hazard. D) holdup.

Q: eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp. If eBay entered into the cooperative agreement with its Australian partner for the purpose of testing the attractiveness of the Australian and New Zealand auction industries prior to making a more significant investment in these industries, this would be an example of A) transaction cost economics. B) tacit collusion. C) explicit collusion. D) real options.

Q: eBay, the online auction company, has an impressive portfolio of cooperative agreements. This portfolio includes an agreement with the U.S. Postal Service to facilitate the shipping of goods purchased through eBay auctions, an agreement to allow MBNA to use eBay's name on a credit card, and an agreement in an online auction company in Korea that is supplemented with an investment by eBay in the Korean partner. In addition, at one time eBay had formed an independent firm, called eBay Australia and New Zealand, with an Australian company known as ecorp. If eBay's agreements with their Korean and Australian partners were intended to increase the number of buyers and sellers and thereby increase the value of eBay's online auction services for every eBay user, this would imply that the online auction industry is an example of a ________ industry. A) declining B) network C) commodity D) mature

Q: While it is often the case that there will be important information asymmetries between firms in an alliance, these asymmetries are likely to be ________ when alliances partners come from different countries. A) much less B) about the same as C) much greater D) marginally greater

Q: ________ may enable partners to explore exchange opportunities that they could not explore if only legal and economic organizing mechanisms were in place. A) Trust B) Joint ventures C) Reputational effects D) Equity investments

Q: When the probability of cheating in a cooperative relationship is greatest, a(n) ________ is the preferred form of cooperation. A) equity agreement B) licensing agreement C) joint venture D) distribution agreement

Q: Which of the following is a limitation of the reputational control of cheating in a strategic alliance? A) Subtle cheating in an alliance is likely to become public knowledge. B) Even if one firm is clearly cheating in an alliance, the other firm may not be sufficiently tied into a network of firms to make this information public. C) The effect of a tarnished reputation forecloses future opportunities for a firm and it helps reduce the current losses of the firm that was cheated. D) The reputation of the firm that was impacted by the cheating may be impacted as significantly as the firm that committed the cheating.

Q: All of the following are methods firms can use to reduce the threat of cheating in strategic alliances except A) contracts. B) equity investments. C) joint ventures. D) tacit collusion.

Q: An example of a contractual clause that deals with operating issues would be a A) noncompete clause. B) minority protection clause. C) put options clause. D) termination clause.

Q: Alliances will be preferred to acquisitions when A) alliances limit a firm's flexibility under conditions of high uncertainty. B) there is minimal unwanted organizational "baggage" in an acquired firm. C) there are legal constraints on acquisitions. D) the value of a firm's resources and capabilities does not depend on its independence.

Q: ________ theory suggests that under conditions of high uncertainty, firms may be unwilling to commit to a particular course of action by engaging in an exchange with a firm and will choose, instead, the strategic flexibility associated with alliances. A) Capabilities B) Real options C) Transaction cost economics D) Resource-based

Q: Alliances will be preferred to going it alone when A) the level of transaction-specific investments required to complete an exchange is low. B) there are no transaction-specific investments required to complete an exchange is low. C) when there is low uncertainty about the future value of an exchange. D) the level of transaction-specific investments required to complete an exchange is moderate.

Q: Firms ________ when they attempt to develop all the resources and capabilities they need to exploit market opportunities and neutralize market threats by themselves. A) engage in tacit collusion B) form joint ventures C) go it alone D) engage in explicit collusion

Q: Two possible substitutes for strategic alliances include A) going it alone and tacit collision. B) going it alone and acquisitions. C) acquisitions and explicit collusion. D) explicit collusion and tacit collusion.

Q: To the extent that a strategic alliance is based on ________ relations, it will make the alliances costly to imitate. A) socially complex B) tacit collusion C) explicit collusion D) moral hazard

Q: Research indicates that the most common reason that alliances fail to meet the expectations of partner firms is A) the lack of financial resources. B) the necessity of transaction-specific investments. C) the lack of transaction-specific investments. D) the partners' inability to trust one another.

Q: One of the reasons why the benefits that accrue from a particular strategic alliance may be rare is that A) relatively few firms may have the complementary resources and abilities needed to form an alliance. B) there is a relatively large number of alliance partners available. C) relatively many firms may have the complementary resources and abilities needed to form an alliance. D) there may be a relatively low amount of transaction-specific assets to enter into similar alliances.

Q: The rarity of strategic alliances A) depends solely on the number of competing firms that have already implemented an alliance. B) depends solely on whether or not the benefits that firms obtain from their alliances are not common across firms in the industry. C) depends not only on the number of competing firms that have already implemented an alliance but also on whether or not the benefits that firms obtain from their alliances are common across competing firms in the industry. D) depends solely on the number of substitutes available for alliances.

Q: Research suggests that ________ are the type of alliance where existence of transaction-specific investments often leads to holdup problems. A) licensing agreements B) equity alliances C) joint ventures D) distribution agreements

Q: When one firm makes more transaction-specific investments in a strategic alliance than partner firms make, that firm may be subject to a form of cheating called ________ that occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance. A) adverse selection B) holdup C) moral hazard D) noncompliance

Q: Often both parties in a failed alliance accuse each other of A) adverse selection. B) tacit collusion. C) moral hazard. D) holdup.

Q: ________ 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. A) Moral hazard B) Adverse selection C) Holdup D) Explicit collusion

Q: In general, the ________ tangible the resources and capabilities that are to be brought to a strategy alliance, the ________ costly it will be to estimate their value before an alliance is created, and the ________ likely it is that adverse selection will occur. A) more; more; more B) less; more; less C) less; more; more D) more; more; less

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

Q: If TeleCo were to enter into a strategic alliance with a partner that promised it could deliver a high quality wireless infrastructure when in fact the potential partner had neither the skills nor abilities to provide this infrastructure, TeleCo could be said to be impacted by A) moral hazard. B) adverse selection. C) holdup. D) tacit collusion.

Q: Research shows that as many as ________ of all strategic alliances do not meet the expectations of at least one alliance partner. A) one-third B) five-eighths C) one-half D) two-thirds

Q: Consistent with a real options perspective, firms in new and uncertain environments are likely to A) avoid using strategic alliances. B) develop numerous strategic alliances. C) develop few strategic alliances. D) engage in vertical integration.

Q: As long as the cost of ________ to enter a new industry is less than the cost of ________, an alliance can be a valuable strategic opportunity. A) vertically integrating; learning new skills and capabilities B) learning new skills and capabilities; using an alliance C) using an alliance; learning new skills and capabilities D) learning new skills and capabilities; vertically integrating

Q: Although joint ventures between firms in the same industry ________ collusive implications, research has shown that these kinds of joint ventures are ________. A) may have; relatively rare B) are not likely to have; relatively rare C) may have; relatively common D) are not likely to have; relatively common

Q: Strategic alliances are particularly valuable in facilitating market entry and exit when the value of market entry or exit is A) high. B) low. C) moderate. D) uncertain.

Q: ________ exist(s) when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate. A) Economies of scale B) Explicit collusion C) A learning race D) Tacit collusion

Q: ________ exist(s) when firms directly communicate with each other to coordinate their levels of production and/or their prices. A) Economies of scale B) Explicit collusion C) A learning race D) Tacit collusion

Q: In one study almost ________ percent of the managers in entrepreneurial firms felt unfairly exploited by their large-firm alliance partners. A) 80 B) 20 C) 50 D) 10

Q: A firm's ability to learn is known as its A) competitive position. B) competitive advantage. C) distinctive competence. D) absorptive capacity.

Q: Network industries are characterized by A) increasing diseconomies of scale. B) increasing returns to scale. C) decreasing returns to scale. D) decreasing economies of scale.

Q: When both parties to an alliance are seeking to learn something from that alliance, a ________ can evolve. A) learning race B) dynamic race C) learning dynamic D) learning curve

Q: Strategic alliances can create economic value through helping firms improve their current operations by A) facilitating the development of technology standards. B) facilitating tacit collusion. C) exploiting economies of scale. D) managing uncertainty.

Q: In a ________, cooperating firms create a legally independent firm in which they invest and from which they share any profits that are created. A) licensing agreement B) supply agreement C) distribution agreement D) joint venture

Q: A ________ is a form of nonequity alliance that exists when one firm allows another to use its brand name to sell its products. A) supply agreement B) distribution agreement C) licensing agreement D) joint venture

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