Dual Distribution in Franchising
AbstractIn this paper we offer an explanation for the practice of dual distribution. the simultaneous use of franchises and company owned outlets for distributing new products. Our explanation rests on the observation that franchisors often acquire private information, not available to franchisees, on product demand through marketing efforts. Under this assumption of asymmetric information, we show that a franchisor will use both direct ownership as well as the franchise contract to convey information about a new product. This explanation for dual distribution relies neither on capital market imperfections nor upon location-specific factors, in contrast to alternative explanations advanced in the literature Testable implications of the signaling model are discussed.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 973.
Length: 33 pages
Date of creation: Mar 1991
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
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