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Law
Questions from Managerial Economics & Business - $5
1. An article in the
Wall Street Journal reported that large hotel chains, such as Marriott,
are tending to reduce the number of hotels that they franchise to
outside owners and increase the number the chain owns and manages
itself. Some chains are requiring private owners or franchisees to make
upgrades in their hotels, but they are having a difficult time enforcing
the policy. Marriott says the upgrading is important because we ve
built our name on quality.
a. What type of agency problem is involved here?
b. Why would Marriott worry about the quality of hotels it doesn t
own but franchises?
c. Why would a chain such as Marriott tend to own its hotels in
resort areas, such as national parks, where there is little repeat
business, and franchise in downtown areas, where there is a lot of
repeat business? Think of the reputation effect and the incentive of
franchises to maintain quality...
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