Externality and Organizational Choice in Franchising

Date
2005-01
Authors
Dnes, Antony William
Garoupa, Nuno
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Economics and Business
Abstract
In this paper, we examine some implications of externality for the organization of firms. The need to control externality explains the selection, at the level of the chain, of full integration, dealerships or franchising systems, or systems of dual distribution where company and franchised outlets operate simultaneously, in preference to unrestricted retailing. We show that there could be a trade-off between managerial motivation and effective controlling of externality. This trade-off can explain the selection of particular organizational structures within franchising. In particular, non-separable externality, where the value of the externality depends upon characteristics of both the generating and affected unit, is costly to control contractually and could encourage integration.
Description
Keywords
Externality, Franchising
Citation
Dnes, Antony and Nuno Garoupa. "Externality and Organizational Choice in Franchising." Journal of Economics and Business, vol. 57, 01 Jan. 2005, pp. 139-149. EBSCOhost, doi:10.1016/j.jeconbus.2004.09.005.
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