Abstract
Most of the existing empirical literature on franchising investigates the share of company-owned versus franchised establishments within large retail firms. This literature ignores a third organizational option: establishments may be operated as unaffiliated, independently owned businesses. This paper empirically analyses what determines whether independent ownership is observed, using data on the affiliation status of nearly 2,300 motel establishments located throughout the United States. Heterogeneity in the underlying economic environment helps explain affiliation choices at the establishment level. The results also suggest that failure to consider independent establishments may explain the puzzling negative correlation between risk and vertical integration commonly found in the empirical franchising literature.
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