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The Determinants of Dual Distribution Revisited

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  • Philippe Cyrenne

Abstract

This paper examines the use of what has been called “dual distribution” by firms. Dual distribution involves a firm using both company-owned stores and independently owned franchises to sell its product or service. Using panel data from 1048 companies for the years 2005 to 2009, I use a variety of estimators to determine the factors that influence the relative use of franchising by companies. A key focus of the paper is to control for the possible endogeneity of the franchise fee, royalty rate, and franchise ratio for the companies in the respective industries. Using a panel data estimator and lagged values of the franchise fee and royalty rate as instruments, I find that one reason the franchise fee and royalty rate do not appear to influence the relative use of franchising is due to industry- and firm-level fixed effects, which capture the variation in royalty rates and franchise fees at the company level.

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  • Philippe Cyrenne, 2016. "The Determinants of Dual Distribution Revisited," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(2), pages 167-182, July.
    • Handle: RePEc:taf:ijecbs:v:23:y:2016:i:2:p:167-182
    DOI: 10.1080/13571516.2015.1108518
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    1. Ying Fan & Kai-Uwe Kühn & Francine Lafontaine, 2017. "Financial Constraints and Moral Hazard: The Case of Franchising," Journal of Political Economy, University of Chicago Press, vol. 125(6), pages 2082-2125.
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