Scenario 16-1
Vacation Inns of Canada (VIC) has recently announced intentions of building a new spa resort complex in Vernon, British Columbia.Assume that the hotel and resort market in Vernon is characterized by monopolistic competition.
-Refer to Scenario 16-1.Existing hotels,motels,and lodging facilities in Vernon are likely to experience what kind of externality as a result of the new VIC resort

Question

Quizplus · Accepted Answer

The existing hotels, motels, and lodging facilities in Vernon are likely to experience a business-stealing externality as a result of the new VIC resort, as customers may choose to stay at the new resort instead of the existing establishments. This is a common externality in monopolistic competition as firms compete for customers by offering differentiated products.

Scenario 16-1 Vacation Inns of Canada (VIC) Has Recently Announced Intentions of Intentions