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Double-Sided Externalities and Vertical Contracting : Evidence from European Franchising Data

Author

Listed:
  • Magali Chaudey

    () (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique)

  • Muriel Fadairo

    () (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper deals with contractual design and vertical relationships within a franchise chain, in the field of the literature on share contracts. Within a double-sided moral hazard, the contract sharing the profit generated by the vertical decentralized structure results from the necessity to incite both the franchisee and the franchisor. This paper takes into account the five franchisor incentive mechanisms in order to study the chosen type of vertical coordination in different contexts. Using a multinational European dataset, we provide evidence that the two-sided externalities and monitoring costs have an influence on the type of vertical coordination in the network

Suggested Citation

  • Magali Chaudey & Muriel Fadairo, 2009. "Double-Sided Externalities and Vertical Contracting : Evidence from European Franchising Data," Working Papers hal-00376243, HAL.
  • Handle: RePEc:hal:wpaper:hal-00376243
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00376243
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    References listed on IDEAS

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    1. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    2. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
    3. Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 503-526, October.
    4. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
    5. Thierry Pénard & E. Raynaud & S. Saussier, 2003. "Dual distribution and royalty rates in franchised chains : an empirical exploration using French data," Post-Print halshs-00069582, HAL.
    6. Arrunada, Benito & Garicano, Luis & Vazquez, Luis, 2001. "Contractual Allocation of Decision Rights and Incentives: The Case of Automobile Distribution," Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(1), pages 257-284, April.
    7. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    8. Lafontaine, Francine, 1993. "Contractual Arrangements as Signaling Devices: Evidence from Franchising," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 256-289, October.
    9. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
    10. Brickley, James A, 1999. "Incentive Conflicts and Contractual Restraints: Evidence from Franchising," Journal of Law and Economics, University of Chicago Press, vol. 42(2), pages 745-774, October.
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    Keywords

    Agency theory; econometrics of contracting; vertical restraints;

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