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2011 | OriginalPaper | Chapter

Incentives and Control in Company-Owned Versus Franchised Outlets: An Empirical Study at the Chain Level

Authors : Didier Chabaud, Arnaud Lavit d’ Hautefort, Stéphane Saussier

Published in: New Developments in the Theory of Networks

Publisher: Physica-Verlag HD

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Abstract

In this article, we investigate the relative performances of company-owned outlets vs. franchised outlets using an original database consisting of 231 units of a French chain. At first glance, the financial and quality performances of company-owned units are better than franchised units. However, the opposite is true when the particular characteristics of each unit are considered in account in the analysis.

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previous chapter Allocation of Decision Rights in International Franchise Firms: The Case of Master and Direct Franchising

next chapter Plural Form and Franchisor Performance: Early Empirical Findings from Europe

Notice that in the viewpoint of Holmström and Milgrom (1991) company-owned units are the locus of multi-tasking problems. If some dimensions are not controlled by the franchisor, they will probably be sacrificed. Store managers will have a strong tendency to substitute observable tasks with those difficult to observe.

Notice that the multi-unit franchisee can own an impressive number of units and is not restricted to possess units in only one chain. But we are neglecting this point, considering only the units he possesses in NET.

Due to confidentiality of the data we must keep the chain anonymous.

Notice that a second M&A operation took place in 2003, leading to an increase in the proportion of company-owned units (41%). Nevertheless, since the integration of this network is very recent – the operating rules are not entirely deployed – we have excluded these units from our data, limiting our study to 231 units owned before the M&A.

Notice, also, that we were not able to obtain the profit data.

Notice that the quasi lack of franchised units in the CAD hypermarkets is due to the 1998 M&A: NET acquired the CAD units, which were located in the CAD hypermarkets.

One can wonder if the nature of each activity (repairs vs. sales) better corresponds to each kind of governance structure. One idea could be that (1) the franchisee would prefer activities such as repairs that are less dependent on the warehouse; and (2) the franchisor would prefer to franchise complex activities (repairs) rather than the simpler activities ones (sales) because the sales activity is more difficult to monitor than the repairs. We do not address this issue.

Notice that econometrical treatment compares the MULTI-FRANCHISEE and COMPANY-OWNED with FRANCHISEE, dropping this last variable from the table.

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Title: Incentives and Control in Company-Owned Versus Franchised Outlets: An Empirical Study at the Chain Level
Authors: Didier Chabaud
Arnaud Lavit d’ Hautefort
Stéphane Saussier
Publisher: Physica-Verlag HD
Book: New Developments in the Theory of Networks
Print ISBN: 978-3-7908-2614-2

Electronic ISBN: 978-3-7908-2615-9

Copyright Year: 2011
DOI: https://doi.org/10.1007/978-3-7908-2615-9_5