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Optimal Monetary Provisions in Plural Form Franchise Systems; A Theoretical Model of Incentives with Two Risk-Averse Agents

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  • Cintya Lanchimba

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)

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    Abstract

    Empirical studies show that most franchise chains use dual distribution - or a plural form franchise system - characterized by the coexistence of franchised units and company- owned retail units in the same distribution network. Therefore, this paper focuses on dual distribution and considers the di fferent contractual arrangements in this type of franchise system. The paper contributes to the theoretical eff orts at developing a model to study the optimal determination of the share parameters (commission and royalty rates) in a mixed system.

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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number halshs-00830899.

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    Date of creation: 06 Jun 2013
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    Handle: RePEc:hal:wpaper:halshs-00830899

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    Related research

    Keywords: Dual distribution; royalty rate; commission rate; risk aversion; moral hazard;

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    1. Etro Federico, 2010. "Endogenous Market Structures and Contract Theory. Delegation, principal-agent contracts, screening, franchising and tying," Working Papers 2010_25, Department of Economics, University of Venice "Ca' Foscari".
    2. Francine Lafontaine & Kathryn L. Shaw, 2001. "Targeting Managerial Control: Evidence from Franchising," NBER Working Papers 8416, National Bureau of Economic Research, Inc.
    3. Thierry Pénard & Emmanuel Raynaud & Stéphane Saussier, 2011. "Monitoring policy and organizational forms in franchised chains," Working Papers 245772, Institut National de la Recherche Agronomique, France.
    4. Chong-En Bai & Zhigang Tao, 2000. "Contract Mixing in Franchising as a Mechanism for Public-Good Provision," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(1), pages 85-113, 03.
    5. Blair,Roger D. & Lafontaine,Francine, 2005. "The Economics of Franchising," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521772525.
    6. Hempelmann, Bernd, 2006. "Optimal franchise contracts with private cost information," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(2), pages 449-465, March.
    7. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, Elsevier, vol. 18(2), pages 401-420, June.
    8. 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.
    9. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 18(2), pages 511-535, October.
    10. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199243273, October.
    11. Tracy R. Lewis & Huseyin Yildirim, 2002. "Learning by Doing and Dynamic Regulation," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 22-36, Spring.
    12. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 8(3), pages 471-501, October.
    13. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    14. Luis Vázquez, 2005. "Up-front Franchise Fees and Ongoing Variable Payments as Substitutes: An Agency Perspective," Review of Industrial Organization, Springer, Springer, vol. 26(4), pages 445-460, 06.
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