The Plural Form in Franchising: A Synergism of Market and Hierarchy

S. B. Lewin-Solomons

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In a plural form, two or more organisational arrangements possess a synergism when used simultaneously. For example, rather than specialising, many chains contain a large proportion of both franchised and company-owned stores. By franchising some stores while they own others, franchise systems can achieve dynamic efficiency that would be impossible in a homogenous system. Chains value their franchisees because franchisees exercise initiative. However, unless a chain includes a sufficiently high proportion of company stores, it lacks proper incentives to evaluate innovations efficiently. Therefore, despite the dynamism of franchises, a chain must maintain a certain proportion of company stores.

Date: 2000-12
Note: IO
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