Territorial Exclusivity in Franchisee Systems

17 Pages Posted: 25 Jun 2010

See all articles by Luis Vázquez

Luis Vázquez

Universidad de Salamanca

Ana Branca Carvalho

Escola Superior de Tecnologia e Gestão de Lamego

Date Written: June 25, 2010

Abstract

This article shows that the higher the problems of hold-up and free-riding in franchise systems, the higher the probability that the franchisor will provide franchisees with territorial exclusivity. It therefore appears that territorial exclusivity is an assurance from a franchisor that the return on the sunk investments of a franchisee will not be subsequently held-up. Moreover, it appears that territorial exclusivity alleviates free-riding problem by making the franchisees local monopolists for the brand in question, which increases the probability that they will receive most of the benefits generated by their service provision.

Keywords: Ffranchising, Hold-Up, Free-Riding Territorial Exclusivity

JEL Classification: L14, L22, L81

Suggested Citation

Vázquez, Luis and Carvalho, Ana Branca, Territorial Exclusivity in Franchisee Systems (June 25, 2010). Available at SSRN: https://ssrn.com/abstract=1630427 or http://dx.doi.org/10.2139/ssrn.1630427

Luis Vázquez

Universidad de Salamanca ( email )

Campus Miguel de Unamuno
37008 Salamanca, Salamanca 23007
Spain
+34 923 294 640 Ext. 3174 (Phone)
+34 923 294 715 (Fax)

Ana Branca Carvalho (Contact Author)

Escola Superior de Tecnologia e Gestão de Lamego ( email )

Escola Superior de Tecnologia e Gestão
Campus Politécnico de Repeses
Viseu, 3504-510
Portugal

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