Allocation of authority in franchise chains

Paulo Azevedo

No 262, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: This article investigates the level of delegation in franchise chains, distinguishing the two most relevant franchising models: Business Format Franchising and Learning Network Franchising. The two models basically differ on the level of real authority (effective control over decisions) exercised by the franchisors. Differences in business features, such as the required standardization, monitoring costs and consumer sensitivity to variations in product attributes (consumer measurement costs), explain the adoption of the different models of franchising. These variables affect the trade-off between the risk of brand name loss and the gains in knowledge sharing and learning within the network. The higher the need for standardization, the higher is the risk of brand name loss, and, consequently, the more likely the franchisor will adopt an organizational design that confers more control over franchisees’ decisions, such as business format franchising. This paper presents two case studies with Brazilian food franchise chains that illustrate the main argument and suggest additional propositions. Moreover, an empirical analysis of 223 franchise chains provides additional support to the hypothesis of a negative the effect of required standardization on the level of delegation.

Date: 2010-07-19
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Allocation of Authority in Franchise Chains (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:262

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