Existing hotels, motels, and lodging facilities in Myrtle Beach are likely to experience what kind of externality as a result of the new VIA hotel/resort?
a. product-variety
b. business-stealing
c. competitive
d. advertising
The correct answer and explanation is :
The correct answer is b. business-stealing.
Explanation:
Externalities refer to the side effects or consequences of an economic activity that affect other parties who did not choose to be involved in that activity. In the case of Myrtle Beach, the introduction of a new VIA hotel/resort is likely to generate a “business-stealing” externality for existing hotels, motels, and lodging facilities in the area.
A business-stealing externality occurs when the entry of a new competitor causes existing businesses in the same market to lose customers or revenue. In this case, the new VIA hotel/resort is likely to attract customers who would have otherwise stayed at the existing hotels in the region. This could lead to a decrease in bookings or occupancy rates for established lodging businesses as customers may prefer the new hotel because of its offerings, pricing, location, or other appealing features.
Myrtle Beach is a popular tourist destination, so the addition of a new, potentially high-end resort could attract both repeat visitors and new tourists. This can siphon demand away from older hotels and motels, particularly if the new VIA hotel has unique or superior amenities, services, or promotional strategies that entice customers to choose it over its competitors. For example, the VIA hotel might offer lower rates, more luxurious accommodations, or special packages that appeal to tourists, reducing the demand for other existing accommodations.
On the other hand, product-variety externalities would occur if the new resort expanded the variety of offerings in a way that benefited the market, but in this context, the main effect of the new hotel is more likely to be a direct loss of business from competitors rather than an expansion of options. Similarly, a competitive externality might involve general market rivalry, but business-stealing is a more direct and specific impact in this situation. Lastly, an advertising externality would involve the indirect effects of marketing, which is not as applicable here as the primary concern is the direct loss of business from the entry of a new competitor.