A Note On Franchising And Wage Bargaining

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A Note On Franchising And Wage Bargaining

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Thomas Grandner () (Vienna University of Economics & B.A.)

Abstract

A franchise contract relocates distributable rent between franchisor and franchisee. With decentralized wage bargaining this modifies the position of the union in wage bargaining. If the rent is relocated to the franchisor completely, then even a strong union is not able to raise the wage above reservation level in the franchisee's firm. If franchisor and franchisee negotiate on rent division, there is an incentive to increase franchise fee with the consequence that franchisee's wage is pushed down. Therefore the overall rent assigned to labor depends on the differences of labor intensity in the franchisor's and franchisee's firm. Firm owners may be able to transfer distributable rents from a firm with a strong union to one with a weak union. Additional a franchising contract shows up a first mover advantage. The franchising contract is placed before wage bargaining, benefiting the franchisor.

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Paper provided by Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness in its series Working Papers with number geewp42.

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Date of creation: Sep 2004
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Handle: RePEc:wiw:wiwgee:geewp42

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Find related papers by JEL classification:
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-10-21 (All new papers)
NEP-BEC-2004-10-21 (Business Economics)

References listed on IDEAS
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.:

Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June. [Downloadable!] (restricted)
Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. [Downloadable!] (restricted)
McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December. [Downloadable!] (restricted)

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