Emmanuel Raynaud

Dual distribution and royalty rates in franchised chains: an empirical exploration using French data

Abstract Most empirical studies concerning franchise systems have dealt with the monetary contractual provisions, especially with the determinants of royalty rates. But the organizational design of franchised chains has received less attention and dual distribution is still a misunderstood phenomenon in economic theory. What determines the proportion of companyowned units or franchised units within a chain? How does the level of the royalty rate interplay with the extent of company ownership? This paper supports the idea that dual distribution enables to mitigate contractual hazards due to information asymmetry and incomplete contracting. Thus a chains efficiency should strongly depend on the correct balance between royalty rates and the extent of company ownership. The interdependence between these two strategic decisions is analyzed by using a panel data set of 745 French franchisors. Econometric tests show that brand name value has a positive impact both on royalty rates and the proportion of companyowned units. Moreover, we put forth evidence that royalties and company ownership are complementary variables for the organizational design of chains.

The Economics of Private Institutions: An Introduction to the Dynamics of Institutional Frameworks and to the Analysis of Multilevel Multi-Type Governance

Summary: Private institutions are complementary, both to contracts and the public and general institutions of a society, in that they allow agents to collectively coordinate (and so benefit from economies of scale , from learning effects, and from management of externalities), while avoiding over high maladaptation costs (since they can be adapted to the specificities of a category of transactions or of a community). They depend on a principle of voluntary adhesion. Their members agree to comply ex-post with a private order. Exit can therefore hinder enforcement, potentially calling for reinforcement by public institutions. From a dynamic perspective, private institutions are the driving force of changes to institutional frameworks. They are set up to complete (or bypass) existing institutional frameworks. With the passing of time, an increasing number of economic agents can “adopt” a given private institution, making its order less negotiated and increasingly mandatory. In line with the BarzelNorth study of property rights, we believe private institutions have an impact both on the costs of creating coordination rules and on the enforcement costs of these rules. Therefore, we reveal, both in static and dynamic, firstly, the rationale behind the creation of private institutions (or a private collective order), secondly, how agents prefer to rely on a combination of various coordination devices, that compensating for each other’s weaknesses, to settle their coordination problems by minimizing transaction costs.

Monitoring policy and organizational form in franchised chains

Abstract Franchising is nowadays a prominent way to organize the distribution sector. While previous literature suggests that monitoring issues are a critical determinant of organizational choices, it is rather silent on the optimal monitoring strategy once the organization of the chain is set. In this article, we analyze the monitoring policy of chains with both franchised and company-owned units. We develop a model in which a chain monitors its outlets under asymmetric information on local demands and managers’ efforts. We show that partial monitoring (i.e., when the franchisor monitors only a subset of its outlets) represents an optimal monitoring policy. Second, we identify the units that should be monitored. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.

Creating a Central Party to Manage a Web of Contracts: The Case of Franchising in the French Milling Industry

One of the main characteristics of the agro-food chains is the coexistence of entities with different capacities of production, small firms and large corporations, retail and wholesale trade. The size of producers, distributors and corporations is not necessarily a competitive advantage. The French poultry industry is a good illustration. The creation of quality signal, the “label rouge” allowed some small producers remain competitive.