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Complementarities between franchise contract duration and multi-unit propensity in franchise systems

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  • Luis Vázquez

Abstract

This article explores the determinants of two crucial decisions in franchising relations: the contract length and the franchisers' propensity to allow franchisees to own several stores. The results show that franchisers alleviate franchisees' fears of hold-up by providing them with longer contract length. The findings also show that the lower the contracting experience of the franchisers and the higher the potential free-riding in a franchise system, the shorter the contract duration. Regarding multi-unit franchising, franchisers have a lower propensity to allow franchisees to own several outlets when the cost of monitoring outlet managers are high, and they have a greater propensity to offer multi-unit opportunities when free-riding appears to be a threat. The findings also show the existence of complementarities between the decisions studied, such that they constitute a system of interdependent elements.

Suggested Citation

  • Luis Vázquez, 2008. "Complementarities between franchise contract duration and multi-unit propensity in franchise systems," The Service Industries Journal, Taylor & Francis Journals, vol. 28(8), pages 1093-1105, October.
    • Handle: RePEc:taf:servic:v:28:y:2008:i:8:p:1093-1105
    DOI: 10.1080/02642060802187942
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