The Balance of Power in Franchising

Ulrich Atz, Blake Eliason, Michael Lipsitz, Peter Norlander, Pinto, Sérgio () and Marshall Steinbaum
Additional contact information
Ulrich Atz: Bocconi University
Blake Eliason: University of Utah
Michael Lipsitz: University of Pennsylvania
Peter Norlander: Loyola University Chicago
Pinto, Sérgio: OECD
Marshall Steinbaum: University of Utah

No 18660, IZA Discussion Papers from IZA Network @ LISER

Abstract: We measure how the contractual balance of power between franchisors and franchisees has shifted over 2009-2024 by analyzing a large corpus of Franchise Disclosure Documents and surveying over 300 franchisees. Coding more than 20 provisions across 4,500 chains, we find that franchisee autonomy declined systematically: exclusive territories fell from a majority of chains to around 20\%, while restrictions on pricing, sourcing, product offerings, and post-term competition each rose to near-universal prevalence. Franchisees appear not to have been compensated for this loss of autonomy: franchise fees rose with franchisor control, chain growth did not increase, and complaint rates to the Federal Trade Commission did not decline. We additionally find that chains that adopt franchisor-favoring provisions became 2-5 percentage points more likely to be acquired by private equity within five years. We interpret this finding as one plausible explanation for reductions in franchisee autonomy.

Keywords: vertical restraints; franchising; text analysis; survey (search for similar items in EconPapers)
JEL-codes: J31 J42 K21 L42 (search for similar items in EconPapers)
Date: 2026-05
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