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Multi-unit Ownership in Franchising: Evidence from the Fast-Food Industry in Texas

Author

Listed:
  • Arturs Kalnins

    () (University of Southern California)

  • Francine Lafontaine

    () (University of Michigan)

Abstract

Using data on all restaurants opened in Texas between 1980 and 1995 by seven large U.S. fast-food chains, we examine the extent of multi-unit ownership among franchisees and analyze how franchisors allocate the ownership of new units. We show that franchisees with nearby units are much more likely to be assigned ownership of a new unit. Further, controlling for distance, franchisees are more likely to obtain a new unit whose market is contiguous and demographically similar to those surrounding their existing units. Finally, franchisors use these same criteria to select those units to retain as company owned.

Suggested Citation

  • Arturs Kalnins & Francine Lafontaine, 2004. "Multi-unit Ownership in Franchising: Evidence from the Fast-Food Industry in Texas," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 747-761, Winter.
  • Handle: RePEc:rje:randje:v:35:y:2004:4:p:747-761
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    References listed on IDEAS

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    1. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, pages 408-419.
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    Citations

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    Cited by:

    1. Evelien P. M. Croonen & Marko Grünhagen & Melody L. Wollan, 2016. "Best fit, best practice, or stuck in the middle? The impact of unit ownership on unit HR performance in franchise systems," International Entrepreneurship and Management Journal, Springer, vol. 12(3), pages 697-711, September.
    2. Griessmair, Michele & Hussain, Dildar & Windsperger, Josef, 2014. "Trust and the tendency towards multi-unit franchising: A relational governance view," Journal of Business Research, Elsevier, vol. 67(11), pages 2337-2345.
    3. Arturs Kalnins & Kyle J. Mayer, 2004. "Franchising, Ownership, and Experience: A Study of Pizza Restaurant Survival," Management Science, INFORMS, vol. 50(12), pages 1716-1728, December.
    4. Philip G. Gayle & Zijun Luo, 2015. "Choosing between Order-of-Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and McDonald's Restaurant Outlets," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 129-151, March.
    5. Ackermann, Jeff, 2016. "The Effect of Franchising on Store Performance: Evidence from an Ownership Change," MPRA Paper 76185, University Library of Munich, Germany.
    6. Toivanen, Otto & Waterson, Michael, 2011. "Retail Chain Expansion: The Early Years of McDonalds in Great Britain," CEPR Discussion Papers 8534, C.E.P.R. Discussion Papers.
    7. Darlene Chisholm & George Norman, 2012. "Spatial competition and market share: an application to motion pictures," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, pages 207-225.
    8. Dunning, John H. & Pak, Yong Suhk & Beldona, Sam, 2007. "Foreign ownership strategies of UK and US international franchisors: An exploratory application of Dunning's envelope paradigm," International Business Review, Elsevier, vol. 16(5), pages 531-548, October.
    9. Gad Allon & Awi Federgruen & Margaret Pierson, 2011. "How Much Is a Reduction of Your Customers' Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 489-507, October.
    10. Philippe Cyrenne, 2016. "The Determinants of Dual Distribution Revisited," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(2), pages 167-182, July.
    11. Dildar Hussain & Josef Windsperger, 2013. "A property rights view of multi-unit franchising," European Journal of Law and Economics, Springer, vol. 35(2), pages 169-185, April.
    12. repec:eee:touman:v:52:y:2016:i:c:p:405-415 is not listed on IDEAS
    13. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers 1502, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    14. Clarissa Yeap, 2006. "Residual Claims and Incentives in Restaurant Chains," Working Papers 06-18, Center for Economic Studies, U.S. Census Bureau.
    15. Josef Windsperger, 2013. "The governance of franchising networks," Chapters,in: Handbook of Economic Organization, chapter 27 Edward Elgar Publishing.
    16. Muriel Fadairo & Cintya Lanchimba & Josef Windsperger, 2015. "Network Form and Performance. The Case of Multi-Unit Franchising," Working Papers halshs-01128075, HAL.
    17. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, pages 629-685.
    18. Emmanuel Raynaud, 2010. "The Structure of Franchise Contracts," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 20 Edward Elgar Publishing.
    19. Susan F. Lu & Gerard J. Wedig, 2013. "Clustering, Agency Costs and Operating Efficiency: Evidence from Nursing Home Chains," Management Science, INFORMS, vol. 59(3), pages 677-694, May.
    20. Arturs Kalnins, 2004. "An Empirical Analysis of Territorial Encroachment Within Franchised and Company-Owned Branded Chains," Marketing Science, INFORMS, vol. 23(4), pages 476-489, September.

    More about this item

    Keywords

    Transactional Relationships; Contracts and Reputation; Networks Sports; Gambling; Recreation; Tourism Franchising; Restaurants;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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