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Property Rights, Productivity, and the Nature of Noncontractible Actions in a Franchise System

  • Hennessy, David A.

Viewing ownership as bargaining power when some actions cannot be contracted upon, we explore the role of property rights in franchising, paying particular attention to complementary franchisor and franchisee noncontractibles, and cases of franchisor scale economies. Then, and regardless of ownership, franchise system performance increases with the number of franchises and with productivity innovations. Performance also increases if the franchisor can visibly commit to actions. Limits on scale economies suggest that the franchise system may perform better when assets are franchisee-owned. The strategic environment is more complex when noncontractibles substitute. Then all parties may be immiserized by a productivity innovation.DESCRIPTORS: Transactional-Relationships; Contracts-and-Reputation; Networks (L140); Firm-Organization-and-Market-Structure-Markets-vs-Hierarchies; Vertical-Integration (L220); Business-Economics (M210); Franchise-; Franchising-; Property-Rights; Property-; Organizational-Behavior; Transaction-Costs; Property-Rights (D230)AVAILABILITY: OBJECT IDENTIFIER: doi:10.1016/S0921-8009(03)00256-8

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 11750.

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Date of creation: 01 Dec 2003
Date of revision:
Publication status: Published in Journal of Economic Behavior and Organization, December 2003, vol. 52 no. 4, pp. 443-468
Handle: RePEc:isu:genres:11750
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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