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Royalty Rate Structure in Case of Franchising

Author

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  • Ivan Kotliarov

    (Cand. Sc. in Economics, Associate Professor, Chair Of International Finance and Financial Markets, Faculty of Economics, National Research Uniersity Higher School of Economics)

Abstract

The present article contains an analysis of differences between licensing and franchising. It is demonstrated that models of royalty rate calculation developed for licensing should not be applied to franchising as benefits received by licensee and franchisee are different. It is proposed to include in the model of royalty calculation the risk reduction generated by franchisor¡¯s effective technologies and managerial support that are given to franchisee. It is demonstrated that franchisee may wish to acquire the franchise even if franchisor takes the full amount of additional income or if this additional income is negative.

Suggested Citation

  • Ivan Kotliarov, 2011. "Royalty Rate Structure in Case of Franchising," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 139-156, May.
    • Handle: RePEc:cuf:journl:y:2011:v:12:i:1:p:139-156
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Royalty; Royalty rate; Franchising; Franchisee; Franchisor; Risk; Income;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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