Price Control In Franchised Chains: The Case Of McDonald's Dollar Menu

Itai Ater (itai.ater@stanford.edu) and Oren Rigbi (origbi@bgu.ac.il)
Additional contact information
Itai Ater: Department of Economics, Stanford University

No 06-022, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: We present new evidence on the ability of chains to improve control over prices set in their franchised outlets. We construct and analyze panel data of fast food outlets from 1999 and 2006 to quantify price differences between franchised and corporate-owned outlets, and to test whether the introduction of low-priced items is an effective tool to control prices in franchised chains. Our main finding is that since 1999, McDonald's franchisees’ price premium over corporate-owned outlets has fallen by 70%, and that this drop has occurred only in items with good substitutes in the Dollar Menu, introduced by McDonald's in 2002. We also test how competition and repeat customers affect pricing in franchised and corporate-owned outlets. We find that whereas the existence of repeat customers affects prices, competition does not.

Keywords: Franchising; Fast food; Free riding; Vertical restraints (search for similar items in EconPapers)
JEL-codes: K21 L14 L42 (search for similar items in EconPapers)
Date: 2007-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www-siepr.stanford.edu/repec/sip/06-022.pdf (application/pdf)

Related works:
Working Paper: Price Control In Franchised Chains: The Case Of McDonald's Dollar Menu (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sip:dpaper:06-022

Access Statistics for this paper

More papers in Discussion Papers from Stanford Institute for Economic Policy Research Contact information at EDIRC.
Bibliographic data for series maintained by Anne Shor (anneshor@stanford.edu this e-mail address is bad, please contact repec@repec.org).