Improving Channel Coordination Through Franchising
AbstractIn this paper, we explore the role of franchising arrangements in improving coordination between channel members. In particular we focus on two elements of the franchising contract, namely, the royalty structure and the monitoring technology. We begin with a simple analysis where a manufacturer distributes its product through a retailer and the retail demand is affected by the retail price and the service provided by the retailer. In this context we show that neither royalty payments nor monitoring are needed for full coordination. We then extend the model to allow for free riding by franchisees and show that although monitoring helps affect the behavior of the franchisees, royalty payments are still unnecessary to coordinate the activities of the franchisor and the franchisees. Finally, we show that in environments where factors affecting retail sales are controlled by both the franchisor and the franchisee, royalty payments provide the necessary incentives for the franchisor while monitoring systems are used to ensure that franchisees also behave in the best interest of the channel. Our general results are found to be consistent with those in Brickley and Dark (1987) and Norton (1988), who conclude that franchising is affected by principal-agent problems. Our theory finds special support in the work of Lafontaine (1988) where it is concluded that the incidence of franchising is related to cost of monitoring and the importance of franchisor investments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 9 (1990)
Issue (Month): 4 ()
franchising; brand name; service; monitoring; moral hazard;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.