Mini-chains within chains: Do they affect hotel performance?

Two organizational solutions support the widespread use of multi-unit ownership by hotel-chain affiliates: franchise and management contracts. However, little has been studied about the implications of (i) such ownership concentration (mini-chains within chains) and (ii) the choice of their governance form on hotel performance. We argue that mini-chains create additional agency and resource-availability problems compared to single-unit business, and management contracts may better address these problems as they better align incentives within the complex multi-agency relationships (typical of mini-chains) and develop a more effective internal labor market for managers. Our analysis of the Spanish hotel industry consistently shows that mini-chains managed by large multi-unit franchisees (more than three hotels) perform worse than smaller or single-unit franchisees. In contrast, this decline in performance disappears when mini-chains are operated under management contracts.