Contract Mixing in Franchising as a Mechanism for Public Good Provision

Posted: 1 Nov 1999

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

Zhigang Tao

The University of Hong Kong - School of Business

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Abstract

This paper is concerned with the coexistence of company-owned units and franchised units in business format franchising and their different contractual arrangements. Drawing insights from case studies that indicate both the development and the maintenance of company-wide brand names and unit-specific sales activities are crucial to a franchise company, we construct a multitask model to account for such contract mixing in franchising. Intuitively, low-powered contracts are offered to some managers to induce effort for brand-name development and maintenance, while high-powered contracts are offered to the remaining managers to elicit sales activity and capture the beneficial effect of the company brand name. Franchising can thus be viewed as an organizational arrangement for production involving brand-name products and services.

JEL Classification: D82, L14, L22, L23

Suggested Citation

Bai, Chong-En and Tao, Zhigang, Contract Mixing in Franchising as a Mechanism for Public Good Provision. Available at SSRN: https://ssrn.com/abstract=184848

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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University of Michigan - William Davidson Institute ( email )

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Zhigang Tao

The University of Hong Kong - School of Business ( email )

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