Decision Structures in Franchise Systems of the Plural Form
AbstractMany successful franchise chains directly own a positive fraction of stores --- a structure referred to as plural form. We propose that this ownership structure is chosen as a commitment not to expropriate franchisees. The theoretical model is based on an empirical analysis of contract and interview data from the US fast-food sector and well known stylized facts: First, franchisees typically have strong contractual obligations to implement activities selected by the chain. Second, franchisees pay a revenue-based royalty to the chain. Therefore, the chain has incentives to select inefficient activities that yield high revenues but are too costly. If uniform standards require that activities must be the same in company-owned and franchise stores, a substantial fraction of company-owned stores works as a commitment device to select more efficient activities. The theoretical analysis further predicts that a strong contractual commitment to uniform standards is preferable if the fraction of company-owned stores is sufficiently high. This prediction is supported by our data.
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 InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse8_2008.
Date of creation: Jan 2008
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de/index.php?id=494
franchising; plural form; contracts;
Find related papers by JEL classification:
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L8 - Industrial Organization - - Industry Studies: Services
- M0 - Business Administration and Business Economics; Marketing; Accounting - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
- Chong-En Bai & Zhigang Tao, 2000. "Contract Mixing in Franchising as a Mechanism for Public-Good Provision," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 85-113, 03.
- Grossman, Sanford J & Hart, Oliver, 1985.
"The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration,"
CEPR Discussion Papers
70, C.E.P.R. Discussion Papers.
- Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
- Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
- Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
- Francine Lafontaine & Emmanuel Raynaud, 2002. "The Role of Residual Claims and Self-Enforcement in Franchise Contracting," NBER Working Papers 8868, National Bureau of Economic Research, Inc.
- Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 503-26, October.
- Francine Lafontaine & Kathryn L. Shaw, 2001.
"Targeting Managerial Control: Evidence from Franchising,"
NBER Working Papers
8416, National Bureau of Economic Research, Inc.
- Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
- Rubin, Paul H, 1978. "The Theory of the Firm and the Structure of the Franchise Contract," Journal of Law and Economics, University of Chicago Press, vol. 21(1), pages 223-33, April.
- Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
- Debajyoti Chakrabarty & Ananish Chaudhuri & Chester Spell, 2002. "Information Structure and Contractual Choice in Franchising," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 638-, December.
- Katz, Barbara G. & Joel Owen, 1992. "On the existence of franchise contracts and some of their implications," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 567-593, December.
- Lewin-Solomons, S., 2000. "Innovation and Authority in Franchise Systems: An Empirical Exploration of the Plural Form," Cambridge Working Papers in Economics 0015, Faculty of Economics, University of Cambridge.
- Lewin-Solomons, S.B., 2000. "The Plural Form in Franchising: A Synergism of Market and Hierarchy," Cambridge Working Papers in Economics 0027, Faculty of Economics, University of Cambridge.
- Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
- Maness, Robert, 1996. "Incomplete contracts and the choice between vertical integration and franchising," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 101-115, October.
- Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
- Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).
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.