Marc Rysman

"How Many Franchises in a Market?"

JEL codes: F12; OL13
Keywords: Vertical Relationships; Franchising; Strategic Trade; Competition Policy

Abstract:  This paper studies how firms use their number of franchises as a strategic tool. Firms can commit to high output by creating many franchises. However, signing a single franchise contract with a low wholesale price is an equally effective way to generate output. The value of granting many franchises is undercut when firms can sign contracts afterwards, so firms place only a single franchise in a market. This finding reverses previous results which did not model contracts. The sme issues arise in international competition policy, where countries use anti-trust policy to affect their number of exporters and use subsidies to affect the choices of exporters.