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Credible Spatial Preemption through Franchising

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  • Gillian K. Hadfield
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    Abstract

    The analysis of strategic behavior frequently revolves around the problem of identifying commitment "technologies" that credibly expand strategic opportunities. This article revisits the question of spatial preemption to investigate the potential for organizational form to serve as a commitment technology in the effort to deter entry. The analysis demonstrates first that delegation of pricing authority to independent outlet operators through a franchise contract can deter entry. Moreover, this delegation can be made credible in the sense of being renegotiation-proof through appropriate contractual design.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 22 (1991)
    Issue (Month): 4 (Winter)
    Pages: 531-543

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    Handle: RePEc:rje:randje:v:22:y:1991:i:winter:p:531-543

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    Cited by:
    1. Innes, Robert, 2008. "Entry for merger with flexible manufacturing: Implications for competition policy," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(1), pages 266-287, January.
    2. Francine Lafontaine, 1995. "Pricing Decisions in Franchised Chains: A Look at the Restaurant and Fast-Food Industry," NBER Working Papers 5247, National Bureau of Economic Research, Inc.
    3. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    4. Murooka, Takeshi, 2013. "A note on credible spatial preemption in an entry–exit game," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 26-28.
    5. Ishibashi, Ikuo, 2003. "A note on credible spatial entry deterrence," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(2), pages 283-289, February.
    6. Ashiya, M., 1998. "Weak Entrants are Welcome," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0468, Institute of Social and Economic Research, Osaka University.
    7. Kato, Atsushi, 2004. "Patent pool enhances market competition," International Review of Law and Economics, Elsevier, Elsevier, vol. 24(2), pages 255-268, June.
    8. Spinelli, Steve & Birley, Sue, 1996. "Toward a theory of conflict in the franchise system," Journal of Business Venturing, Elsevier, vol. 11(5), pages 329-342, September.
    9. Arora, Ashish & Fosfuri, Andrea, 1999. "Licensing the Market for Technology," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2284, C.E.P.R. Discussion Papers.
    10. Ishikawa, Toshiharu & Toda, Masao, 2005. "Retail market structure and the threat by the manufacturer to sell goods directly to the consumer," Socio-Economic Planning Sciences, Elsevier, Elsevier, vol. 39(1), pages 43-55, March.
    11. Corts, Kenneth S. & Neher, Darwin V., 2003. "Credible delegation," European Economic Review, Elsevier, Elsevier, vol. 47(3), pages 395-407, June.
    12. Suzuki, Ayako, 2009. "Market foreclosure and vertical merger: A case study of the vertical merger between Turner Broadcasting and Time Warner," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 27(4), pages 532-543, July.

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