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NEW QUESTION: 1
According to Michael E Porter, evolutionary processes involving both internal and external factors operate to move an industry from its initial structure to its potential structure. A likely structural effect of the major evolutionary processes is that:
A. Learning by buyers who become more sophisticated increases product differentiation.
B. Expansion of industry scale will discourage entry by large firms.
C. Diffusion of proprietary knowledge will tend to reduce entry barriers.
D. Sellers' industries tend to become less concentrated as customers' industries become more concentrated.
Answer: C
Explanation:
Diffusion of proprietary knowledge may result from reverse engineering (a form of imitation) or another form of competitive intelligence (e.g., that obtained from suppliers, distributors, or customers), expiration of patents, purchase, migration of personnel to new firms, and spinoffs of operating segments. Thus, because barriers created by proprietary knowledge and specialized personnel tend to disappear, new competitors may emerge, and vertical integration becomes more likely. However, if further technological advances are feasible, economies of scale in R&D may create a protective barrier against new competition. The problem of diffusion may be met by creation of a substantial capacity to develop new proprietary knowledge.
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