To affiliate, or not to affiliate. Transaction costs and governance choices in luxury hotels in Germany

This paper examines the choice of affiliation or no affiliation to a large hotel chain from the viewpoint of luxury\r\nhotel property owners in Germany. Grounded in transaction cost theory, this study identifies how uncertainty\r\nand frequency influence the owners’ choice of unaffiliated operation and affiliation. The study augments the\r\ntraditional governance literature in the field of the hotel by shedding light on the market/hierarchy decision of\r\nproperty owners rather than on the market entry strategies of international hotels firm. Through a multiple\r\nregression analysis on a sample of 122 existing five-star hotels in Germany, this study provides new empirical\r\nevidence that a frequent contract conclusion with the same hotel chain and a “hotel unrelated” background of\r\nthe owner increases the likelihood of affiliation. In contrast to what transaction cost theory traditionally\r\npredicts, our results reveal that uncertainty is not influencing the owners’ market/hierarchy decision.