Question

Marco is a franchisee with Daggies, a chain of sandwich shops. His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops. Soon afterward, Marco's business deteriorated and he too was forced to close. This is an example of:

A. an economic shakeout at work
B. the coattail effect
C. the law of diminshing returns

Answer 1

A) an economic shakeout at work

Step-by-step explanation:

Shakeout in business and economics is the elimination or acquisition of an industry or sector through competition or other means.

Answer 2

B. the coattail effect

Step-by-step explanation:

Coattail effect is a phenomenon where a franchisee is forced out of business due to the failures of fellow franchise businesses. The term Coattail effect is borrowed from the political world. It describes a situation where a popular presidential candidate attracts votes for other political candidates from his party.

In business, the coattail effect applies to franchises and other small businesses. When a number of franchisee's businesses are performing poorly, customers tend to form a negative opinion regarding the entire franchise as a brand. The formed perception will affect even the better performing franchisee's. Customers stay away from the business leading to its collapse like fellow franchisees.