Outlet Ownership in Franchising Systems: An Agency Based Approach

33 Pages Posted: 7 May 2002

See all articles by Sudhi Seshadri

Sudhi Seshadri

Indian School of Business (ISB), Hyderabad

Date Written: August 23, 2001

Abstract

Building on prior agency theoretic explanations of the franchisor-franchisee relationship, this paper introduces the franchise system manager in the traditional dyadic channel. This allows us to link the franchisors internal agency problems of providing incentives to managers to their external agency problems of acquiring and extracting rents from franchisees. We find preliminary empirical support for this approach in a structural equations model estimated on a franchise system dataset. We then develop and analyze an agency-theoretic model with agency tradeoffs. An explicit rationale for mixed ownership in franchising emerges from the model, where the share of company owned outlets is endogenously determined as the tradeoff between franchisee rents and managerial compensation.

Suggested Citation

Seshadri, Sudhi, Outlet Ownership in Franchising Systems: An Agency Based Approach (August 23, 2001). Review of Marketing Science WP No. 2001833, Available at SSRN: https://ssrn.com/abstract=310892 or http://dx.doi.org/10.2139/ssrn.310892

Sudhi Seshadri (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India
+91 40 318 7506 (Phone)
+91 40 300 7040 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
348
Abstract Views
2,811
Rank
157,801
PlumX Metrics