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Franchise Contract Regulations and Local Market Structure

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  • Charles Murry
  • Peter Newberry

Abstract

Many US states have regulations that restrict the ability of franchisors to terminate franchise contracts. We estimate the economic effects of these regulations with a focus on how they impact market structure. Using data from the quick-service restaurant industry, we find that implementing franchise regulations results in 4–5 percent fewer establishments in the average county. Our results imply that franchise regulation leads to increased concentration in a large number of markets, as the number of counties in the bottom quartile of concentration would increase by between 12 percent and 15 percent with regulation.

Suggested Citation

  • Charles Murry & Peter Newberry, 2022. "Franchise Contract Regulations and Local Market Structure," Journal of Law and Economics, University of Chicago Press, vol. 65(1), pages 105-130.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/717159
    DOI: 10.1086/717159
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    References listed on IDEAS

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    1. Murry, Charles, 2018. "The effect of retail competition on relationship-specific investments: evidence from new car advertising," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 253-281.
    2. Blass, Asher A & Carlton, Dennis W, 2001. "The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws That Limit That Choice," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 511-524, October.
    3. Renáta Kosová & Francine Lafontaine & Rozenn Perrigot, 2013. "Organizational Form and Performance: Evidence from the Hotel Industry," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1303-1323, October.
    4. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    5. Jonathan Klick & Bruce H. Kobayashi & Larry E. Ribstein, 2012. "The Effect of Contract Regulation on Franchising," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 38-53, March.
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    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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