Determinants of contractual restraints in franchise contracting.

Ilir Hajdini,Aveed Raha

doi:10.1002/mde.2961

Abstract

Although an efficient design of franchise contracts requires from the franchisor to choose a bundle of contractual restraints as safeguarding and control mechanism, previous research has not explored the antecedents of contractual restraints as a bundle of contractual clauses. To address this gap, the aim of this study is to explain the determinants of the most important contractual restraints (i.e., exclusive dealing, exclusive territory, tying, resale price maintenance, call option, leasing, alienation, and noncompetition clauses), using transaction cost and relational governance reasoning. The regression results based on primary data from German and Swiss franchise systems provide support of hypotheses.

Highlights

Advantages of hierarchical control do result from integration or ownership and from firms' ability to exercise decision control in exchange relationships (Heide, 1994; Stump & Heide, 1996; Weitz & Jap, 1995)
We argue that the franchisor's use of contractual restraints depends on transaction costs and relational variables, such as environmental uncertainty and trust
The aim of this study was to explain the determinants of contractual restraints in franchise contracting by using transaction cost and relational governance reasoning

Summary

Introduction

Advantages of hierarchical control do result from integration or ownership and from firms' ability to exercise decision control in exchange relationships (Heide, 1994; Stump & Heide, 1996; Weitz & Jap, 1995). According to Stinchcombe (1985), decision control as formal authority can be exercised between firms through contractual clauses. Formal authority in contracts refers to the clauses that restrain franchisees' activities in some desired manner (Lafontaine & Slade, 2014). The efficient allocation of such restraints will influence the performance of franchise systems (Dutta, Heide, & Bergen, 1999). Previous studies have not analyzed contractual restraints in networks (Dutta et al, 1999; Heide, 1994; Michael, 2000b). The second approach that focuses on all possible contractual contingencies, for example, outlet hygiene, labor regulations, and business confidentiality, (Solis‐Rodríguez & González‐Díaz, 2017), hides the influence of the chosen antecedents on the contractual restraints (Poppo & Zenger, 2002; Reuer & Arino, 2007)

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Results

Conclusion