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Monitoring policy and organizational forms in franchised chains

Thierry Pénard (), Emmanuel Raynaud and Stephane Saussier ()
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Emmanuel Raynaud: DEPT SAD - Département Sciences pour l'Action et le Développement - INRA - Institut National de la Recherche Agronomique, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers' efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.

Keywords: Asymmetric information; dual distribution; franchising; monitoring; moral hazard (search for similar items in EconPapers)
Date: 2011
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Published in International Journal of the Economics of Business, Taylor & Francis (Routledge), 2011, 18 (3), pp.399-417

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