Threat of Entry and Organizational-Form Choice: The Case of Franchising in Retailing

Posted: 7 Aug 2020

See all articles by Mitsukuni Nishida

Mitsukuni Nishida

Johns Hopkins University - Carey Business School

Nathan Yang

Cornell University

Date Written: April 6, 2020

Abstract

Retail expansion is led by multi-store firms, which often mix two organizational forms: franchised and company-owned outlets (“franchising decisions”). The authors examine whether strategic considerations in entry and expansion play a role in organizational-form decisions, such as franchising, in retailing. The authors utilize store count and revenues for franchised and company-owned outlets at the nationwide convenience-store chains in 47 geographical markets in Japan between 1984 and 2010. The empirical analyses find strategic considerations in entry and expansion, ignored in the literature on franchising, appear to influence an organizational-form decision: Firms rely more on company-owned outlets for expansion when the threat of entry from competitor firms in adjacent markets increases. We examine two interpretations: the convenience of quick deployment and a credible signal. Numerical analyses of a simple dynamic model of entry and franchising confirm company-owned-outlet-based expansion arises under heightened entry threat. The simulation analysis highlights how franchising decisions in response to an elevated threat of entry may be beneficial (or harmful) for an incumbent firm, which yields key implications for firms, consumers, and policymakers.

Keywords: Threat of Entry, Entry Accommodation, Entry Deterrence, Organizational-Form Choice, Franchising, Retailing

Suggested Citation

Nishida, Mitsukuni and Yang, Nathan, Threat of Entry and Organizational-Form Choice: The Case of Franchising in Retailing (April 6, 2020). Available at SSRN: https://ssrn.com/abstract=3569783

Mitsukuni Nishida (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/mitsukuninishida/

Nathan Yang

Cornell University ( email )

Dyson School, Warren Hall
360E
Ithaca, NY 14853-6201
United States
6072551590 (Phone)

HOME PAGE: http://https://sites.google.com/view/nathanyang/home

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