Dual Distribution in Franchising

Nancy Gallini () and Nancy A. Lutz
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Nancy A. Lutz: Dept. of Economics, Yale University, https://economics.yale.edu/

No 973, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: In this paper we offer an explanation for the practice of dual distribution. the simultaneous use of franchises and company owned outlets for distributing new products. Our explanation rests on the observation that franchisors often acquire private information, not available to franchisees, on product demand through marketing efforts. Under this assumption of asymmetric information, we show that a franchisor will use both direct ownership as well as the franchise contract to convey information about a new product. This explanation for dual distribution relies neither on capital market imperfections nor upon location-specific factors, in contrast to alternative explanations advanced in the literature Testable implications of the signaling model are discussed.

Keywords: Franchises; corporations; marketing; private information (search for similar items in EconPapers)
JEL-codes: L11 L14 L52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1991-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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