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Optimal Monetary Provisions in Plural Form Franchise Systems; A Theoretical Model of Incentives with Two Risk-Averse Agents

Author

Listed:
  • Cintya Lanchimba

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

Empirical studies show that most franchise chains use dual distribution - or a plural form franchise system - characterized by the coexistence of franchised units and company- owned retail units in the same distribution network. Therefore, this paper focuses on dual distribution and considers the di fferent contractual arrangements in this type of franchise system. The paper contributes to the theoretical eff orts at developing a model to study the optimal determination of the share parameters (commission and royalty rates) in a mixed system.

Suggested Citation

  • Cintya Lanchimba, 2013. "Optimal Monetary Provisions in Plural Form Franchise Systems; A Theoretical Model of Incentives with Two Risk-Averse Agents," Working Papers halshs-00830899, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00830899
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00830899
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    References listed on IDEAS

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    1. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
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    3. Gallini, Nancy T & Lutz, Nancy A, 1992. "Dual Distribution and Royalty Fees in Franchising," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(3), pages 471-501, October.
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    5. Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
    6. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
    7. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
    8. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
    9. Nair, Suresh K. & Tikoo, Surinder & Liu, Shuguang, 2009. "Valuing Exclusivity from Encroachment in Franchising," Journal of Retailing, Elsevier, vol. 85(2), pages 206-210.
    10. Luis Vázquez, 2005. "Up-front Franchise Fees and Ongoing Variable Payments as Substitutes: An Agency Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(4), pages 445-460, June.
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    14. Gary J. Castrogiovanni & James G. Combs & Robert T. Justis, 2006. "Shifting Imperatives: An Integrative View of Resource Scarcity and Agency Reasons for Franchising," Entrepreneurship Theory and Practice, , vol. 30(1), pages 23-40, January.
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    More about this item

    Keywords

    Dual distribution; royalty rate; commission rate; risk aversion; moral hazard;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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