Franchise Fees and Royalties: Theory and Empirical Results

Franchise Fees and Royalties: Theory and Empirical Results This is the first econometric study that explores which franchisors in Japan require royalties, what determines the royalty rates of those that require sales-based royalties, and what determines their franchise-fee amounts. Our findings are broadly consistent with the standard principal-agent view of franchise contracts, in which royalties heighten franchisor performance incentives. From an analysis of a broad sample of 278 franchisors in Japan, in 2001, we find that franchise contracts are more likely to include royalties if franchisor performance incentives are more valuable. The same conditions are associated with higher sales-based royalty rates and higher franchise-fee amounts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Franchise Fees and Royalties: Theory and Empirical Results

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-011-9323-7
Publisher site
See Article on Publisher Site

Abstract

This is the first econometric study that explores which franchisors in Japan require royalties, what determines the royalty rates of those that require sales-based royalties, and what determines their franchise-fee amounts. Our findings are broadly consistent with the standard principal-agent view of franchise contracts, in which royalties heighten franchisor performance incentives. From an analysis of a broad sample of 278 franchisors in Japan, in 2001, we find that franchise contracts are more likely to include royalties if franchisor performance incentives are more valuable. The same conditions are associated with higher sales-based royalty rates and higher franchise-fee amounts.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Nov 1, 2011

References

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