On the Economic Geography of Dual Distribution – The Case of McDonald’s in Germany

Abstract

We analyze the allocation of ownership in a franchise system by focusing on location-specific characteristics of the outlets. This study uses a comprehensive data set on McDonald’s restaurants in Germany to investigate the drivers of the decision on whether outlets are companyowned or franchised. We find strong evidence for the repeat-customer hypothesis by showing that outlets are significantly more likely to be company-owned when they are located at places with relatively few repeat customers.We observe the same for outlets that are closer to McDonald’s headquarters. Finally, we find pronounced clustering of multi-unit franchisees.

Keywords: franchising, dual distribution, agency theory, geo-locational data, economic geography

JEL Classification: L24, L81