Credible Spatial Preemption through Franchising
AbstractThe 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 InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 22 (1991)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
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- Innes, Robert, 2008. "Entry for merger with flexible manufacturing: Implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 266-287, January.
- 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.
- 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.
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