The manager of a large luxury hotel chain is currently negotiating a four year contract with a linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end- game problem?
A)Pay the linens company in full at the beginning of the first year.
B)Pay the linens company in full after the first year.
C)Pay the linens company one half of the contract amount after the first year and the remaining half after the second year.
D)Offer to renew the contract if the linens company provides quality linens all four years.

Question

Quizplus · Accepted Answer

Offering to renew the contract if the linens company provides quality linens all four years incentivizes the supplier to maintain high standards throughout the duration of the contract to secure future business, addressing the end-game problem where motivation might otherwise wane as the contract nears completion.

The Manager of a Large Luxury Hotel Chain Is Currently