Scenario 16-1
Vacation Inns of America (VIA)has recently announced intentions to build a new hotel/resort complex in Myrtle Beach,South Carolina.Assume that the hotel/resort market in Myrtle Beach is characterized by monopolistic competition.
-Refer to Scenario 16-1.As a result of the new VIA hotel/resort,existing hotels,motels,and lodging facilities in Myrtle Beach are likely to experience a

Question

Quizplus · Accepted Answer

The new VIA hotel/resort is likely to create a business-stealing externality, which harms existing producers in the market of Myrtle Beach. This is because the market structure is characterized by monopolistic competition, where firms have some market power but face competition from other similar firms. The entry of a new firm, such as VIA, can increase competition and draw customers away from existing hotels, motels, and lodging facilities, leading to a loss of market share and profits for these firms. Therefore, the existing producers are likely to experience a business-stealing externality.