EconPapers    
Economics at your fingertips  
 

Strategic interactions in traditional franchise systems: Are franchisors always better off?

Guiomar Martin-Herran, Simon Pierre Sigué and Georges Zaccour

European Journal of Operational Research, 2011, vol. 213, issue 3, 526-537

Abstract: The effects of price competition and advertising spillover on franchisees' decision to cooperate and on franchisor's contractual preferences are investigated. We show that the franchisees' decision to cooperate or not depends on the type of franchise contracts. Under exclusive territory contracts, any mode of play between franchisees give the same profits to the franchisees and franchisor. Contracts that allow price competition and well targeted local advertising offer a good ground for horizontal cooperation, which may or may not benefit the franchisor depending on whether the prices are strategic substitutes or strategic complements. Contracts in which price competition is allowed and the burden of advertising decisions is totally transferred to the franchisor lead to cooperation between franchisees at the expense of the franchisor. Franchisees do not cooperate to the benefit of the franchisor if local advertising is predatory and price competition is not allowed in the contract, but franchisees are given the responsibility to undertake local advertising. Also, the franchisor endorses cooperation between franchisees when local advertising has a public good nature, but such a cooperation may never occur when the impact of local advertising on demand is significant. We finally show that while some contracts always dominate others, the choice of a franchise contract may also depend on local competition and/or the franchise goodwill.

Keywords: Franchising; Horizontal; cooperation; Differential; games (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221711002268
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:213:y:2011:i:3:p:526-537

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-05-02
Handle: RePEc:eee:ejores:v:213:y:2011:i:3:p:526-537