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Double-Sided Externalities and Vertical Contracting : Evidence from European Franchising Data

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Author Info
Magali Chaudey () (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - CNRS : FRE2938 - Université Jean Monnet - Saint-Etienne)
Muriel Fadairo () (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - CNRS : FRE2938 - Université Jean Monnet - Saint-Etienne)
Abstract

This paper deals with contractual design and vertical relationships within a franchise chain, in the field of the literature on share contracts. Within a double-sided moral hazard, the contract sharing the profit generated by the vertical decentralized structure results from the necessity to incite both the franchisee and the franchisor. This paper takes into account the five franchisor incentive mechanisms in order to study the chosen type of vertical coordination in different contexts. Using a multinational European dataset, we provide evidence that the two-sided externalities and monitoring costs have an influence on the type of vertical coordination in the network

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Paper provided by HAL in its series Working Papers with number hal-00376243_v1.

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Date of creation: 17 Apr 2009
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Handle: RePEc:hal:wpaper:hal-00376243_v1

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Related research
Keywords: Agency theory; econometrics of contracting; vertical restraints;

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  1. Brickley, James A, 1999. "Incentive Conflicts and Contractual Restraints: Evidence from Franchising," Journal of Law & Economics, University of Chicago Press, vol. 42(2), pages 745-74, October.
  2. 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. [Downloadable!] (restricted)
  3. Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law & Economics, University of Chicago Press, vol. 28(3), pages 503-26, October.
  4. Arrunada, Benito & Garicano, Luis & Vazquez, Luis, 2001. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(1), pages 257-84, April.
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  5. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer. [Downloadable!] (restricted)
  6. 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.
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  7. Lafontaine, Francine, 1993. "Contractual Arrangements as Signaling Devices: Evidence from Franchising," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 256-89, October.
  8. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
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This page was last updated on 2009-12-18.

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