Franchisor market power and control rights in franchise systems: the case of Major League Baseball versus the Los Angeles Dodgers

Abstract

The theory of control rights in franchise systems predicts that leverage is garnered either through the franchisor’s system-specific assets or the franchisee’s local market assets. To date, the literature has neglected the market power of the franchisor, as excessive market power limits franchisees’ outside options. In this paper, I study the case of the LA Dodgers baseball franchise and its decision to file a strategic bankruptcy in 2011. In the case study section, I show (i) that the control rights of Major League Baseball (MLB) were amplified due to its monopoly position, (ii) the Dodgers had limited outside options due to this, and (iii) the Dodgers best option was to shift control rights from MLB (franchisor) to the courts even though the team was completely solvent.