The Regulation of Franchising in the New Global Economy
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The Regulation of Franchising in the New Global Economy

Elizabeth Crawford Spencer

While franchising promotes economic and social welfare objectives, Elizabeth Crawford Spencer argues that monitoring and regulation are needed to address potential areas of abuse of the form that can result in costly market inefficiencies.
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Chapter 4: Purpose and Scope of Franchise-specific Regulation and the UNIDROIT Model Law

Elizabeth Crawford Spencer


4. Purpose and scope of franchisespecific regulation and the UNIDROIT Model Law OBJECTIVES OF FRANCHISE-SPECIFIC LEGISLATION Chapter 2 outlined how the parties regulate their interaction privately at the level of the market. Chapter 3 described in detail the nature and terms of franchise contractual agreements. These are private layers of governance. Private layers of governance through the market interaction and contract fail to address certain problems and inefficiencies in the relationship, such as imbalances of power and uncompensated allocations of risk. It is the perception that these important problems remain unaddressed through self-regulation that lead to legislative intervention. The focus of the remaining chapters will be on legislative intervention in the franchise sector, franchise-specific legislation. A study of the regulation of franchising is a study of the ecology of the franchise sector. Legal concepts such as self-regulation and autopoiesis are borrowed from biological sciences. In biological terms systems regulate themselves through a range of inputs and feedback cycles. Each system is quite unique but what they all have in common is process. When the Institute for the Unification of Private Law (UNIDROIT) adopted its ‘Model Franchise Disclosure Law’, the stated purpose was, ‘to provide inspiration and guidance to national legislators in implementing legislation with respect to franchising’ and ‘to encourage the development of franchising as a vehicle for conducting business’. In generating this ‘procommerce document’, UNIDROIT recognized that franchising offers the potential of increased economic development, especially among countries seeking access to know-how.1 Instead of stating the harms that franchising...

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