Plural Form in Franchising: An Incomplete Contracting Approach

George Hendrikse and Tao Jiang

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: Plural form franchising is modeled from an incomplete contracting perspective. Complete franchising is the unique, efficient governance structure only when the plural form externality is limited and the costs of investment are low for both franchisees. Governance structure choice is irrelevant when the costs of investment are high for all franchisees, because no franchisee will invest. Finally, a plural form governance structure is the unique, efficient equilibrium in all other cases because the power allocated to independent franchisees makes them confident that they will be able to recoup their investments. Not locational or other differences between units are necessary for the emergence of plural form franchising, but positive externalities being specific for the plural form.

Keywords: Franchising; Incomplete Contracting; Plural Form (search for similar items in EconPapers)
JEL-codes: L2 M M10 M12 M55 (search for similar items in EconPapers)
Date: 2005-12-21
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Citations: View citations in EconPapers (1)

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