Sorting, Franchising and Real Estate Brokerage Firms

Abstract

Real estate markets remain localized and reflect differences by region. With a large number of brokerage firms and a smaller number of franchisors, a testable hypothesis is whether in equilibrium fees and royalties are equal to the additional return to the franchisee. If fees are set uniformly across the country, economic rents may be earned in specific local markets. Some franchisees may earn excess profits from the franchise arrangement. Empirical results for 1,143 United States residential brokerage firms in 2001 show standardized uniform franchising costs cover any added returns to franchises in the Midwest and South. Excess returns are present for franchisees in the Northeast. The probability of being a franchisee increases with size and scale. Copyright Springer Science+Business Media, LLC 2007Franchise, Residential brokerage, Self-selection, Profitability, Regional variation, Fees, Royalties,

Examining the Drivers for Franchised Chains Performance through the Lens of the Dynamic Capabilities Approach

“…The risks of franchised chains are thus reduced, and their performance is enhanced. Although previous research has shown that the effects of fees and royalties on performance are complex and contingent upon factors such as chain age and size (Benjamin, Chinloy, and Winkler 2007;Grünhagen and Dorsch 2003;Shane, Shankar, and Aravindakshan 2006), we argue that high fees and royalties generate resources used to develop and renew capabilities, and to improve chain performance.…”

Making Franchising Work: A Framework Based on a Systematic Review

“…Of the seven studies that investigated the relationship with financial performance, four found a positive effect (Brand and Croonen ; Benjamin et al . ; Churchill and Hunt ; Frew and Jud 1986), whereas the other three found no effect or a negative effect (Ehrmann and Meiseberg ; Knott ; Yin and Zajac ). These differences may be due to the different operationalization of size used in two of the latter studies and to differences between industries.…”

“…In certain regions, the payments are in balance with the gains of being part of the franchise system, whereas in other regions, franchisees profit more than they have to pay (Benjamin et al . ).…”

“…; Benjamin et al . ; Darr et al . ; Ehrmann and Meiseberg ; Fenwick and Strombom ; Knott ; Komoto ; Yin and Zajac ), without any consistent patterns in sector, country and type of financial performance.…”

“…Only Benjamin et al . () found that the effect on financial performance depends on the region. In certain regions, the payments are in balance with the gains of being part of the franchise system, whereas in other regions, franchisees profit more than they have to pay (Benjamin et al .…”