Solving agency problems, The Wall Street Journal article

Solving agency problems

Reference no: EM1375610

1. The Wall Street Journal article reported that large hotel chains, such as Marriott, are tending to decrease the number of hotels that they franchise to outside owners and raise 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 difficulty 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.

Reference no: EM1375610

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