Control and Performance in Franchising Networks

Hajdini, Ina; Klapper, Helge; Rommer, Paulus S.; Windsperger, Josef

doi:10.1007/978-3-319-57276-5_3

Cited by 2 publications

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“…Despite the growing evidence that decision control and contractual restrictions influence the performance and survival of franchise systems (Azoulay & Shane, ; Hajdini, Klapper, Rommer, & Windsperger, ; Shane, ), previous research has not explored the antecedents of the most important contractual restraints as a bundle of contractual clauses in franchising (Cochet & Garg, ; Dutta et al, ). To address this gap, the aim of this study was to explain the determinants of contractual restraints in franchise contracting by using transaction cost and relational governance reasoning.…”

Section: Discussionmentioning

confidence: 99%

Determinants of contractual restraints in franchise contracting

Hajdini

Raha

2018

Manage Decis Econ

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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. | INTRODUCTIONAdvantages of hierarchical control do not only result from integration or ownership but also 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. In franchising, formal authority in contracts refers to the clauses that restrain franchisees' activities in some desired manner (Lafontaine & Slade, 2014). For instance, by specifying geographical territories which define franchisees' local market boundaries, the franchisor can prevent horizontal externalities (Lafontaine & Slade, 2014); or by authorizing franchisees to acquire raw materials from the appointed suppliers and to sell only brand-related products, the franchisor can influence the set and quality of products available to consumers (Marvel, 1982). Therefore, the efficient allocation of such restraints will influence the performance of franchise systems (Dutta, Heide, & Bergen, 1999).With few exceptions, previous studies have not analyzed contractual restraints in networks (Dutta et al., 1999;Heide, 1994;Michael, 2000b). In franchising, scholars treat franchise contractual clauses either dichotomously (e.g., Dutta et al., 1999;Michael, 2000b;Schmidt, 1994) In this paper, we aim to empirically examine the antecedents of using contractual restraints from a bundle of the most important clauses in franchise contracts. More specifically, the study investigates the determinants of the franchisor's choice of contractual restraints of exclusive territory, exclusive dealing, tying and noncompetition arrangements, resale price maintenance, lease control, real option, and alienation rights (Dnes, 1993;Lafontaine & Slade, 2014;Schmidt, 1994;Windsperger, 2002). We argue that the franchisor's use of contractual restraints depends on transaction costs and relational variables, such as environmental uncertainty and trust. Transaction cost scholars have dominantly focused on explaining how business uncertainties could lead to more decision control (Williamson, 1975;Williamson, 1985;Williamson, 1991;Zhao, Luo, & Suh, 2004). However, they have not considered the role of relational aspects in interorganizational partnerships (Dyer & Singh, 1998;Poppo & Zenger,...

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