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Signaling and rent extraction vis contract proposals in franchising


  • Svend Albæk

    (Institute of Economics, University of Copenhagen)

  • Per Baltzer Overgaard

    (University of Aarhus)


We study the role of two-part transfer schemes as signals of consumer demand from a privately informed franchisor to an uninformed franchisee. Distortions in the wholesale price and the up-front franchise fee offered by the high demand franchisor may possibly separate the different types of franchisors. However, franchise fees may be independent of private information, even in a separating equilibrium. Further, pooling equilibria survive for certain specifications of demand and prior probability distribtutions. Finally, the extraction of downstream rents by the franchisor may be incomplete. We trace some empirical implications of these results.

Suggested Citation

  • Svend Albæk & Per Baltzer Overgaard, 1998. "Signaling and rent extraction vis contract proposals in franchising," CIE Discussion Papers 1998-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  • Handle: RePEc:kud:kuieci:1998-03

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    Cited by:

    1. Albaek, Svend & Overgaard, Per Baltzer, 1998. "Receiver discretion in signalling models: Information transmission to competing retailers," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 209-228, March.

    More about this item


    uncertain retail demand; franchise contracts; signaling; informed principal;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies


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