The Commerce Tavern

Abstract

The owner of the Commerce Tavern is considering the possibility of changing his long-standing policy of not accepting credit-card charges from his clients. His decision is complicated by the presence of two key uncertainties: a contingent bank-fee schedule and several nonquantifiable effects. The case can serve to reinforce the tools of decision analysis, discounted cash flows, and sensitivity analysis and to explore the role of decision analysis in the decision-making process.

Excerpt

UVA-QA-0459

THE COMMERCE TAVERN

H. Franklin Nilson sipped on a tankard of ale and surveyed the guests in the Lounge of the Commerce Tavern. As usual, the room was filled, and Nilson was pleased to see that everything was running smoothly. His staff had no particular problems in handling the full house—an empty table at the Commerce was a rarity. Ever since its opening in 1982, Nilson's establishment had enjoyed all the business it could handle. Even though it was mid-October, Nilson was content in the knowledge that the Commerce was booked solid, straight through the holiday season. The first available reservation was for mid-January.

Nilson's thoughts this particular evening drifted to his recent conversation with Anne Hamlet of the Virginia Merchants Bank (VMB). Over the past several weeks, Hamlet had been providing Nilson with information regarding the potential acceptance of credit cards at the tavern. The Commerce Tavern had never accepted credit cards, personal checks, or house charges. Nilson often wondered if this cash-only policy hurt his business. He had been pleasantly surprised to learn that Hamlet and VMB were quite willing to authorize the Commerce to honor MasterCard and Visa credit cards. He also realized that, if this change in credit policy were to be attractive, the fees levied by VMB would have to be made up by increased business. Nilson always struggled with decisions like this one and, as he returned to his ale, he decided to think about it later.

The Tavern

For over a decade, the Commerce Tavern had enjoyed the reputation of being one of the finest colonial cuisine restaurants in Colonial Williamsburg. Located in Merchants Square, a business and shopping district at the west end of Duke of Gloucester Street, the tavern was adjacent to the Historic Area but technically outside it. Even so, Merchants Square was a stop on the free bus route through Colonial Williamsburg.

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Keywords: cash flow, decision analysis, risk analysis, diversity case, small business