Franchising and Interbrand Competition

Abstract

In many markets with product differentiation, franchisors distribute their products through geographically dispersed franchisees. The main body of the literature on franchising focuses on conflicts of interest in the franchise contract [2; 9; 16] and on whether a franchise is closer to the standard commercial transaction or the standard employment relationship [13]. The rest of the literature confronts more specific problems like resale price maintenance [5; 15], territorial and customer restriction [10; 12], or the determination of the franchise fee and royalty rate [1; 8; 10]. The common model pertains to a single monopolistic franchisor bent on extracting the most profit from its franchisees by various contractual restrictions.