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Monitoring Policy and Organizational Forms in Franchised Chains

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  • Thierry Pénard
  • Emmanuel Raynaud
  • Stéphane Saussier

Abstract

Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers’ efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.

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File URL: http://hdl.handle.net/10.1080/13571516.2011.618613
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 18 (2011)
Issue (Month): 3 (November)
Pages: 399-417

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Handle: RePEc:taf:ijecbs:v:18:y:2011:i:3:p:399-417

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Cited by:
  1. Muriel Fadairo & Cintya Lanchimba, 2012. "Signaling the value of a business concept : Evidence from a structural model with Brazilian franchising data," Working Papers halshs-00735573, HAL.
  2. Muriel Fadairo & Cintya Lanchimba Lopez, 2012. "Performance in distribution systems : What is the influence of the upstream firm’s organizational choices ?," Working Papers 1224, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Cintya Lanchimba, 2013. "Optimal Monetary Provisions in Plural Form Franchise Systems; A Theoretical Model of Incentives with Two Risk-Averse Agents," Working Papers halshs-00830899, HAL.
  4. 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.
  5. Muriel Fadairo & Cintya Lanchimba Lopez, 2012. "Signaling the value of a business concept : Evidence from a structural model with Brazilian franchising data," Working Papers 1228, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  6. Paul Amadieu & Karine Picot-Coupey & Jean-Laurent Viviani, 2013. "Organizational choices and financial performance: the case of company-owned stores, franchisee-owned stores and stores-within-a-store among French fashion retailers," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201335, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  7. 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.

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