Handbook of Economic Organization
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Handbook of Economic Organization

Integrating Economic and Organization Theory

Edited by Anna Grandori

This comprehensive and groundbreaking Handbook integrates economic and organization theories to help elucidate the design and evolution of economic organization. Economic organization is regarded both as a subject of inquiry and as an emerging disciplinary field in its own right, integrating insights from economics, organization theory, strategy and management, economic sociology and congnitive psychology. The contributors, who share this integrated approach, are distinguished scholars at the productive peak in their fields. Each original, state-of-the art chapter not only addresses foundational issues, but also identifies key issues for future research.
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Chapter 27: The governance of franchising networks

Josef Windsperger

Extract

The aim of the chapter is to provide an overview and comparison of major research results regarding the governance structure of franchising networks based on different theoretical perspectives. In addition, I focus on the contribution the property rights theory can make to the franchise literature. Although franchising has been dealt with extensively in the organisational economics and management literature, the relation between residual decision and ownership rights in franchise firms remains largely unexplored. Most studies have focused on the explanation of the incentive structure (fees, royalties and other contractual restrictions) and the proportion of company-owned outlets (e.g. Rubin 1978; Brickley & Dark 1987; Norton 1988; Lafontaine 1992; Dnes 1992, 1996; Lafontaine & Kaufmann 1994; Bradach 1997; Combs & Ketchen 1999; Dahlstrom & Nygaard 1999; Dant & Kaufmann 2003; Lafontaine & Shaw 1999, 2005; Blair & Lafontaine 2005; Bürkle & Posselt 2008; Castrogiovanni et al. 2006a, 2006b; Combs et al. 2009; Barthélemy 2011; Hendrikse & Jiang 2011; Gonzalez-Diaz & Solis-Rodriguez 2012) without investigating the governance structure of the franchise firm as an institutional entity that consists of two interrelated parts: decision rights and ownership rights, the latter of which includes both residual income rights of franchised outlets and company-owned outlets. The franchisor therefore has to set up an efficient network architecture, consisting of contractual relations between the franchisor and the franchisees and hierarchical relations between the headquarters and the managers of the company-owned outlets.

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