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Allocation of authority in franchise chains


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  • Azevedo, Paulo Furquim de


This article investigates the level of delegation in franchise chains, distinguishing the two most relevant franchisingmodels: Business Format Franchising and Learning Network Franchising. The two models basically differ on thelevel of real authority (effective control over decisions) exercised by the franchisors. Differences in businessfeatures, such as the required standardization, monitoring costs and consumer sensitivity to variations in productattributes (consumer measurement costs), explain the adoption of the different models of franchising. Thesevariables affect the trade-off between the risk of brand name loss and the gains in knowledge sharing and learningwithin the network. The higher the need for standardization, the higher is the risk of brand name loss, and,consequently, the more likely the franchisor will adopt an organizational design that confers more control overfranchisees’ decisions, such as business format franchising. This paper presents two case studies with Brazilian foodfranchise chains that illustrate the main argument and suggest additional propositions. Moreover, an empiricalanalysis of 223 franchise chains provides additional support to the hypothesis of a negative the effect of requiredstandardization on the level of delegation.

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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 262.

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Date of creation: 19 Jul 2010
Date of revision:
Handle: RePEc:fgv:eesptd:262

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