An empirical analysis of a firm's decision to franchise

Minkler, Alanson P.

doi:10.1016/0165-1765(90)90185-4

Cited by 183 publications

(121 citation statements)

References 4 publications

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“…This reflects the fact that when monitoring is costly, franchisors rely less on it, depending instead more on residual claims to motivate agents. This result is consistent with findings observed by Brickley and Dark (1987), Norton (1988), Minkler (1990), Lafontaine (1992), Scott (1995) and Kehoe (1996).…”

Section: Determinants Of Organizational Formsupporting

confidence: 83%

“…Our estimate for the intrabrand competition parameter is significantly positive, which is consistent with the presence of horizontal externalities. This result is also obtained by Brickley and Dark (1987), Brickley, Dark and Weisbach (1991b) and Minkler (1990), who observe that franchisors rely less on franchising in industries with non-repeat customers, which they consider to be more susceptible to free riding.…”

Section: Determinants Of Organizational Formsupporting

confidence: 66%

“…Brickley and Dark (1987), Brickley, Dark and Weisbach (1991b) and Minkler (1990) find that franchisors rely less on franchising in industries with non-repeat customers, which they consider to be more susceptible to free riding. However, although the free riding argument also implies that units of franchised chains located along freeways will tend to be companyoperated, Brickley and Dark (1987) and Lafontaine (1999) find the opposite tendency.…”

Section: Agents' Free Ridingmentioning

confidence: 99%

“…In the franchising literature, different types of monitoring costs, understood in a similar vein, have been estimated through indicators such as urban location (Norton, 1988;Lafontaine, 1992), distance between each outlet and the headquarters of the franchisor (Brickley and Dark, 1987;Minkler, 1990), and density of the chain's outlets in each geographic area (Minkler, 1990;Brickley, Dark and Weisbach, 1991b;Carney andGedajlovic, 1991, Lafontaine, 1999;Kehoe, 1996). All of these works observe a higher proportion of franchising for higher levels of moral hazard or higher costs of control.…”

Section: Monitoring Costsmentioning

confidence: 99%

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Institutional constraints on organizations: the case of Spanish car dealerships

2008

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We explain the choice between franchising and vertical integration by estimating a model of relative performance in a sample of 250 Spanish car distributors, controlling for self-selection and including environmental factors. The method allows us to estimate performance counterfactuals. Organizational choice seemingly aims to contain moral hazard for both distributors and manufacturers but it is subject to start-up constraints and switching costs. While the market for franchises remained underdeveloped, information asymmetries led to the opening of integrated outlets. Their subsequent conversion into franchised outlets probably involved prohibitive transaction costs. Consequently, they performed worse than would have been expected had they been independent, as confirmed by the systematic improvement observed when they were in fact converted. The timing of such conversions suggests that switching costs were prohibitive until firms developed a substantial cushion of temporary contracts, previously forbidden by regulation.

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Section: Determinants Of Organizational Formsupporting

confidence: 83%

Section: Determinants Of Organizational Formsupporting

confidence: 66%

Section: Agents' Free Ridingmentioning

confidence: 99%

Section: Monitoring Costsmentioning

confidence: 99%

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Institutional constraints on organizations: the case of Spanish car dealerships

2008

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“…First, several studies in the franchising literature con…rm the distance from the monitoring headquarters is related to the measure of the control/behavioral monitoring costs. The idea behind the correlation is that the cost of sending a company employee to monitor the outlet in a given market may increase as the distance to the market from the headquarter increases (see, e.g., Brickley and Dark 1987;Minkler 1990). Second, given the industry's institutional background, the distance from the headquarters of the shareholding company is likely to a¤ect the behavior of its subsidiary company in the convenience-store industry in Japan.…”

Section: E¤ects Of Entry Order On Market Sharesmentioning

confidence: 99%

First-Mover Advantage Through Distribution: A Decomposition Approach

Nishida

2017

Marketing Science

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Whereas the extant literature on entry-order e¤ects establishes that …rst entrants often earn higher market shares ("market-share advantage"), the literature on distribution suggests increased distribution has a positive e¤ect on sales. Can distribution help us better understand entry-order e¤ects on market shares? This paper examines how the …rst entrant in a geographical market achieves a market-share advantage through distribution. For this purpose, I propose a simple method of decomposing sales into physical distribution and sales performance. The data come from a manually collected panel on six major Japanese convenience-store chains from 47 geographical markets between 1991 and 2007. Using an instrumental variable approach to deal with the potential endogeneity of entry order, I …nd the market-share advantage for the …rst chain brand is positive. Speci…cally, the physical distribution, measured by the number of outlets in a market, drives most of the advantage. This paper further …nds the density of own outlets is nonmonotonically related (inverted U) to sales performance per outlet, suggesting dynamic outlet expansion faces a trade-o¤ between business-stealing e¤ects within a chain ("cannibalization") and advertising e¤ects through repetition.

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References

2020

Location‐based Marketing

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An empirical analysis of a firm's decision to franchise

Cited by 183 publications

References 4 publications

Institutional constraints on organizations: the case of Spanish car dealerships

Institutional constraints on organizations: the case of Spanish car dealerships

First-Mover Advantage Through Distribution: A Decomposition Approach

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