Chapter 2: The Market Interaction as Private Regulation
‘If someone says that he can think or talk about quantum physics without becoming dizzy, that shows only that he has not understood anything whatever about it.’1 ‘Behind the appearance of simplicity the franchise arrangement is probably one of the most complex relationships.’2 Any discourse on the regulation of the franchise sector requires an understanding of how the parties in the franchisor-franchisee relationship regulate their interaction privately. This chapter discusses market interaction which sets the stage for the contracting process and for subsequent stages of the franchise relationship. It examines the roles and motivations of the franchisor and franchisee in the market interaction by exploring: ● ● ● ● ● ● the fundamental nature of the franchise structure and the legal relationship between a franchisor and its franchisees; the social and cultural conditions conducive to franchising, as well as the economic reasons that underlie a franchisor’s choice of the franchise business model; the early stages of a franchise system, system development and recruitment of franchisees; the motivations behind, and the issues surrounding, a franchisee’s choice to participate in franchising; the problems associated with a lack of information about systems and the sector; and an explanation of the importance of uniformity as the underlying justification for the imbalance of power and information that characterizes the relationship. 1 Murray Gell-Mann,
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