Up-front Franchise Fees and Ongoing Variable Payments as Substitutes: An Agency Perspective
AbstractThis article provides evidence on the determinants of the compensation arrangements used in franchise relationships. While the empirical literature has studied two of these compensation arrangements – the royalty rate and the up-front franchise fee – this work expands the analysis to another important source of revenues for franchisors: the sales of inputs to franchisees at prices greater than marginal costs. Consistent with predictions suggested by agency theory, the compensation arrangements studied appear to function as substitutes. The results also reveal that the value of the services provided by franchisors to franchisees strongly affects the compensation arrangements studied, so a capital goal of these arrangements is to recover the costs of the services offered by franchisors. Copyright Springer 2005
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Bibliographic InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 26 (2005)
Issue (Month): 4 (06)
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Web page: http://www.springerlink.com/link.asp?id=100336
Agency theory; contract; franchising; ongoing variable payment; royalty rate; up-front fee;
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- Cintya Lanchimba, 2013. "Optimal Monetary Provisions in Plural Form Franchise Systems ; A Theoretical Model of Incentives with Two Risk-Averse Agents," Working Papers 1321, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Hidetoshi Shiroishi & Tomokazu Kubo, 2012. "Non-contractibility and Market Uncertainty in Franchise Systems," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-023, Keio/Kyoto Joint Global COE Program.
- Ivan Kotliarov, 2011. "Royalty Rate Structure in Case of Franchising," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 139-156, May.
- Muriel Fadairo & Cintya Lanchimba, 2012. "Performance in distribution systems : What is the influence of the upstream firm's organizational choices ?," Working Papers halshs-00727382, HAL.
- Masayoshi Maruyama & Yu Yamashita, 2012. "Franchise Fees and Royalties: Theory and Empirical Results," Review of Industrial Organization, Springer, vol. 40(3), pages 167-189, May.
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