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Franchise Contract Regulations and Local Market Structure

Author

Listed:
  • Charles Murry

    (Department of Economics, Boston College)

  • Peter Newberry

    (Penn State University)

Abstract

Many U.S. states have regulations in place that restrict the ability of franchisors to terminate franchise contracts. We estimate the economic effects of these regulations, with a focus on how they impact market structure. Using data from the quick-service restaurant industry, we find that implementing the franchise regulation results in 4-5% fewer establishments in the average county. Our results imply franchise regulation leads to increased concentration in a large number of markets, as the number of counties in the bottom quartile of concentration would increase by between 11% and 15% with regulation.

Suggested Citation

  • Charles Murry & Peter Newberry, 2020. "Franchise Contract Regulations and Local Market Structure," Boston College Working Papers in Economics 991, Boston College Department of Economics, revised 19 Mar 2021.
    • Handle: RePEc:boc:bocoec:991
    Note: previously circulated as "Local Effects of Franchise Contract Regulations"
    as

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    References listed on IDEAS

    as
    1. Blass, Asher A & Carlton, Dennis W, 2001. "The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws That Limit That Choice," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 511-524, October.
    2. Renáta Kosová & Francine Lafontaine & Rozenn Perrigot, 2013. "Organizational Form and Performance: Evidence from the Hotel Industry," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1303-1323, October.
    3. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    4. Jonathan Klick & Bruce H. Kobayashi & Larry E. Ribstein, 2012. "The Effect of Contract Regulation on Franchising," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 38-53, March.
    5. Murry, Charles, 2018. "The effect of retail competition on relationship-specific investments: evidence from new car advertising," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 253-281.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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