When retail bicycle dealers advertise and perform warranty repairs but do not deliver the personal selling message that Schwinn has designed as part of the marketing plan but cannot observe at less than prohibitive cost,the manufacturer has encountered a problem of ____.

Question

Quizplus · Accepted Answer

The situation described is a classic example of moral hazard, where one party (the retail bicycle dealers) engages in risky or undesirable behavior (not delivering the personal selling message as designed) because another party (the manufacturer, Schwinn) bears the cost of those actions and cannot easily observe or control them.

When Retail Bicycle Dealers Advertise and Perform Warranty Repairs but Do