In the world of French high cuisine, a three-star rating from the Michelin Red Guide is a widely accepted indicator of gastronomic excellence. French consumers consider Gault Milleau, another restaurant guide, not as authoritative as the Michelin guide because Gault Milleau, unlike Michelin, accepts advertising and its critics accept free meals. a. Why are guides' ratings important to restaurant owners and chefs? Discuss the effect of a restaurant's rating on the demand for the restaurant. A) It provides information to consumers regarding the restaurant's quality, thus, reducing the moral hazard problem. A high rating can increase demand B)It provides information to consumers regarding the restaurant's quality, thus, reducing the adverse selection problem. A high rating can increase demand. b. Why do advertising and free meals taint the credibility of Gault Milleau? Discuss the moral hazard problem of Gault Milleau's ratings. A) The critics may be biased toward restaurants that give them free meals or advertise in the guide. Once the restaurant
In the world of French high cuisine, a three-star rating from the Michelin Red Guide is a widely accepted indicator of gastronomic excellence. French consumers consider Gault Milleau, another restaurant guide, not as authoritative as the Michelin guide because Gault Milleau, unlike Michelin, accepts advertising and its critics accept free meals. a. Why are guides' ratings important to restaurant owners and chefs? Discuss the effect of a restaurant's rating on the demand for the restaurant. A) It provides information to consumers regarding the restaurant's quality, thus, reducing the moral hazard problem. A high rating can increase demand B)It provides information to consumers regarding the restaurant's quality, thus, reducing the adverse selection problem. A high rating can increase demand. b. Why do advertising and free meals taint the credibility of Gault Milleau? Discuss the moral hazard problem of Gault Milleau's ratings. A) The critics may be biased toward restaurants that give them free meals or advertise in the guide. Once the restaurant
Chapter14: Monopolistic Competition And Product Differentiation
Section: Chapter Questions
Problem 15P
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