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Contractual Design as a Determinant of Performance: Evidence from Franchising

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  • Magali Chaudey
  • Muriel Fadairo

Abstract

This empirical note deals with the contractual design of relationships between producers and retailers. It provides evidence on the links between the features of vertical contracts organizing franchising networks and the performances of these networks. An agency perspective is used to understand the structure of contracts. We focus on the relevance of vertical restraints by the upstream firm to prevent retailers from free-riding in the distribution networks. From six frequent contractual provisions we distinguish two types of contracts according to the degree of constraint imposed on the franchisees. Econometric estimations carried out on this basis offer evidence consistent with the hypothesis that within franchising systems, more constrained contracts for retailers encourage better performance at the network level.

Suggested Citation

  • Magali Chaudey & Muriel Fadairo, 2008. "Contractual Design as a Determinant of Performance: Evidence from Franchising," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 15(1), pages 117-127.
    • Handle: RePEc:taf:ijecbs:v:15:y:2008:i:1:p:117-127
    DOI: 10.1080/13571510701830556
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    Cited by:

    1. Constantino J. Garcia Martin & Amparo Medal-Bartual & Marta Peris-Ortiz, 2014. "Analysis of efficiency and profitability of franchise services," The Service Industries Journal, Taylor & Francis Journals, vol. 34(9-10), pages 796-810, July.
    2. Jung Hwan Koh & Christian Rojas, 2022. "Multi‐unit ownership and market power: A study of the lodging industry in Texas," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4087-4105, December.

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