Agency problems
Not what you're looking for?
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.
Purchase this Solution
Solution Summary
The solution discusses the problems being faced by Mariott hotels particularly Agency problems. The solution answers the question below and goes into quite a bit of detail for each of the three parts. An excellent response to the question being asked.
Solution Preview
a. Principal-agent problem exists between Mariott and its franchisees. This is because Mariott wants to maintain a certain level of quality at all its hotels. However, to maintain that level of quality requires capital investment by franchisees. The franchisees are not willing to invest that money in the hotels, because they see no interest in promoting the brand image of Mariott. All that the franchisees care about is their personal profits. By investing in the hotels, ...
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.