The Production Franchise: An Unstable Organizational Choice

Bruno Versaevel

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: In this paper some determinants of discrete shifts from production franchise agreements to vertical integration are investigated from a new angle. Production franxhise agreements are considered as an organizational innovation for the diffusion of process and/or product innovations. A common agency model describes production franchising as a contractual device between agent (the production franchisor) ans multiple principals (the production franchisees) that operate on an exclusive segment of a given territory. The boundaries of the franchisenetwork are obtained as a non-cooperative solution. Sufficient conditions are obtained for the profitability of franchising production and or the reduction of the degree of appropriability of innovation benefits by industrial franchisors. This offers a new theoretical explanation for observed business practices.

Keywords: Franchising; production; innovation; appropriability; common agency (search for similar items in EconPapers)
JEL-codes: F23 L22 (search for similar items in EconPapers)
Date: 1999-10
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:9913

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