Week 6 en 7

Question 1

What does strategic flexibility mean?

Answer 1

Having the choice between several different strategic options

Question 2

What are real options?

Answer 2

A firm has the right, but not the obligation to invest in real assets

Question 3

Example real options(mD)

Answer 3

Mac Donalds want to open in Vietnam, but waits because of elections in two year. (real option to defer)

Question 4

Name types of flexibility

Answer 4

Option to defer
Option to grow
Option to contract
Option to shut down and restart
Option to abandon
Option to expand

Question 5

Name some problems of using NPV

Answer 5

1. Cash flow projections are unreliable
2. Riskiness can not be asserssed
3. Does not allow for stage decision-making

Question 6

Name 2 financial options

Answer 6

Call option
Put option

Question 7

Name 2 types of collusion, and if it is illegal or not

Answer 7

Explicit collusion (illegal)
Tacis collusion

Question 8

How can firms cheat in collusions?

Answer 8

Bertrand cheating: undercutting the price
Cournot cheating: Changing production output

Question 9

Why would firms cheat in a collusion

Answer 9

1. Prisoners dilemma (it just still work)
2. Opportunity costs of co-operating

Question 10

What are signals

Answer 10

Indicating you want to collude: not reducing the price if the competitor does (Costly to monitor)

Question 11

What is a tough signal

Answer 11

firm sending this signal will decrease prices or increase output more than
would otherwise be the case if other firm cheats

Question 12

What is a soft signal

Answer 12

firm sending this signal will decrease prices or increase output less than
would otherwise be the case if other firm cheats

Question 13

What to do when cheating is focussed on price?

Answer 13

(do NOT send tough signals):
* Puppy-dog ploy: maintaining a nonaggressive stance leads others to be non-
aggressive
* Fat-cat effect: actively investing in ways that others will find not find threatening leads
others to be non-aggressive

Question 14

What to do when cheating is focussed on quantities?

Answer 14

Top-dog strategy: aggressive strategic investments threaten massive retaliation if
another firm engages in aggressive behavior
* Lean-and-hungry look: retaining the ability to make aggressive strategic investments
has the effect of reducing the incentives of others to make these aggressive
investments
Strategic implications of soft and tough strategies

Question 15

Industry conditions and tacit collusion

Answer 15

Small number of firms
* Product homogeneity
* Cost homogeneity
* Price leaders
* Industry social structure (e.g. norms and behavior)
* High order frequency & small order size
* Large inventories & order backlogs
* Entry barriers
Industry conditions and tacit collusion

Question 16

Name (Possible) consequences of collusion

Answer 16

Inefficient organizations – no pressure to be more efficient
* Less innovations and product/service improvements
* Jail time