Contractual restraints and performance in franchise networks

Abstract

Contractual control in franchising is exercised by using the following clauses: exclusive dealing, exclusive territory, tying arrangement, resale price maintenance, real option, lease control, alienation and non-competition covenants. Previous research has not explained the performance consequences of these contractual restraints in franchise contracting. This study examines - from a franchisor perspective - the impact of individual (disaggregated) and bundled (aggregated) contractual restraints on franchise system performance. In line with transaction cost theory predictions, the aggregated approach shows that bundling of contractual restraints increase franchise system performance (i.e. profitability and efficiency). The results of seemingly unrelated regression analyses based on data from the German and Swiss franchise sector provide support for most of the hypotheses. Overall, this study contributes to the franchising and marketing channel literature by presenting a new approach to analyze the performance consequences of a bundle of contractual restraints in franchise contracting.