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Allocation of authority in franchise chains

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  • Azevedo, Paulo Furquim de

Abstract

This article investigates the level of delegation in franchise chains, distinguishing the two most relevant franchising models: Business Format Franchising and Learning Network Franchising. The two models basically differ on the level of real authority (effective control over decisions) exercised by the franchisors. Differences in business features, such as the required standardization, monitoring costs and consumer sensitivity to variations in product attributes (consumer measurement costs), explain the adoption of the different models of franchising. These variables affect the trade-off between the risk of brand name loss and the gains in knowledge sharing and learning within the network. The higher the need for standardization, the higher is the risk of brand name loss, and, consequently, the more likely the franchisor will adopt an organizational design that confers more control over franchisees’ decisions, such as business format franchising. This paper presents two case studies with Brazilian food franchise chains that illustrate the main argument and suggest additional propositions. Moreover, an empirical analysis of 223 franchise chains provides additional support to the hypothesis of a negative the effect of required standardization on the level of delegation.

Suggested Citation

  • Azevedo, Paulo Furquim de, 2010. "Allocation of authority in franchise chains," Textos para discussão 262, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:eesptd:262
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    File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/6893/1/TD%20262%20-%20Paulo%20Furquim%20de%20Azevedo.pdf
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    Cited by:

    1. Richard S. Brown, 2017. "Franchisor market power and control rights in franchise systems: the case of Major League Baseball versus the Los Angeles Dodgers," Service Business, Springer;Pan-Pacific Business Association, vol. 11(1), pages 1-21, March.
    2. Josef Windsperger, 2013. "The governance of franchising networks," Chapters,in: Handbook of Economic Organization, chapter 27 Edward Elgar Publishing.

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