Plural Form in Franchising: An Incomplete Contracting Approach

26 Pages Posted: 2 Jan 2006

See all articles by George W.J. Hendrikse

George W.J. Hendrikse

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

T. Jiang

Erasmus Research Institute of Management (ERIM)

Date Written: December 21, 2005

Abstract

Plural form franchising is modeled from an incomplete contracting perspective. Complete franchising is the unique, efficient governance structure only when the plural form externality is limited and the costs of investment are low for both franchisees. Governance structure choice is irrelevant when the costs of investment are high for all franchisees, because no franchisee will invest. Finally, a plural form governance structure is the unique, efficient equilibrium in all other cases because the power allocated to independent franchisees makes them confident that they will be able to recoup their investments. Not locational or other differences between units are necessary for the emergence of plural form franchising, but positive externalities being specific for the plural form.

Keywords: Franchising, Incomplete Contracting, Plural Form

Suggested Citation

Hendrikse, George W.J. and Jiang, Tao, Plural Form in Franchising: An Incomplete Contracting Approach (December 21, 2005). ERIM Report Series Reference No. ERS-2005-090-ORG, Available at SSRN: https://ssrn.com/abstract=871577

George W.J. Hendrikse (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tao Jiang

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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