Franchise Contracting and Organization.ppt

Franchise Contracting anization
Francine Lafontaine
University of Michigan
Organization
Introduction
Agency theory and franchising
Self-enforcement and franchising
Multi-tasking plementarities
Conclusion
Introduction
American Heritage Dictionary of the English Language:
the word es from the old French word franche which means free or exempt
In medieval times, a franchise was a right or privilege granted by a sovereign power -- king, church, or local government for various activities such as building roads, holding fairs, organizing markets, or for the right to maintain civil order and collect taxes
Introduction
In most cases, the grantee was required to make a payment to the sovereign power for this right or privilege usually a share of the product or profit
that payment was called a royalty, a term still in use today
government granted franchises still exist in road building and cable TV for example
Introduction
A (commercial) franchise however today is typically defined as
a contractual agreement
between two legally independent firms
in which the franchisee pays the franchisor for the right to sell the franchisor's product and/or the right to use its trademarks in a given location for a specified period of time
Introduction
According to the Federal mission, in the USA the following three elements must be present for a business to be considered a franchise:
1- the franchisor must license a trade name under which the franchisee operates
2- the franchisor must exert significant control over, or provide significant assistance to, the franchisee
3- the franchisee must have paid at least $500 to the franchisor during the first six months of operation
Introduction
In USA, franchising therefore includes both
traditional franchising, . car and gasoline and soft-drink distribution
business-format franchising, where the franchisor sells a turn-key operation to its franchisees (McDonald’s and Burger King, but also Holiday Inn and Budget Rental car)
Intr