Three essays on agglomeration, strategic orientation, and organizational form

Abstract

This dissertation consists of three essays, trying to fill a gap in the literature by exploring the interaction of agglomeration, ownership structure, and strategic orientation. Much research has been focused on each perspective of issues, but little work has been done on the outcomes from the interaction. The first essay focuses on how the effect of franchising influences the performance of hotel segments across all identifiable hotel chain locations in the United States. This essay analyzes the effect of franchising in the aggregate, controlling for brand quality segments, or service levels, as well as each individual quality tier. In addition, this essay examines the effect of franchising both with and without controls for the endogeneity of the franchise treatment decision. First, the findings indicate that franchised-ownership is associated with higher performance outcomes among hotels both with and without controlling the endogenous selection. Second, the results imply that the effects of franchising and multi-unit franchising have differential benefits based on the product quality attributes of the establishments, and suggest that previous studies examining franchising way have overlooked these differences. The second essay presents the joint choices of geographic location and product positioning in the Texas lodging industry. The literature on the two-dimension Hotelling model concludes that firms choose to maximally differentiate on the dominant characteristic and minimally differentiate on the dominated characteristic. I argue that, assuming the geographic location is the dominant characteristic and the product positioning is the dominated characteristic, the model implies that multi-unit owners will structure their portfolios of establishments to be geographically differentiated while choosing less differentiated brands. Alternatively, I argue that, if the geographic location is the dominated characteristic and the product positioning is the dominant characteristic, the model implies that multi-unit owners will locate their establishments near one another in a geographic space while choosing highly differentiated brands. The empirical findings indicate a max-min (min-max) equilibrium, which provides insights into the strategic motivations of multi-unit operators and the relative dominance of place versus market position in those decisions. The third essay analyzes how product market strategy and ownership structure influence the evolution of the cluster. Using the data from the Texas Comptroller of Public Accounts from 2010 to 2016, this study focuses on how the joint effects of product market strategy and ownership structure shape the lodging industry dynamics and eventually the spatial distribution of hotels. The literature on agglomeration claims that the agglomeration effect is heterogeneous among hotels and this effect is based on product heterogeneity between entrants and incumbents nearby. In addition, the choice of the ownership structure of entrants might substantially change the competitive environment of the market. This research proposes that multi-unit owners who operate a bundle of product portfolios can obtain more benefits but neutralize more threats from agglomeration. The results show that the multi-unit owner will establish a new high-end hotel in the market characterized by high counts of low end hotels if one of the incumbents belongs to the multi-unit owner. Moreover, the findings also show that multi-unit owners who operate multiple cross-tier/same-chain hotels will neutralize the negative externality from agglomeration. The results imply that the owner of high-end hotels may find it beneficial to control nearby incumbents.