A strategic look at the organizational form of franchising
Economic Institutions of Strategy
ISBN: 978-1-84855-486-3, eISBN: 978-1-84855-487-0
Publication date: 22 September 2009
Abstract
An agency relationship exists whenever one party (the principal) delegates authority to another (the agent). Because agents are assumed to be self-interested and to possess goals that diverge from the principal's goals, the principal must expend resources (called agency costs) to insure that agents act in her interest (Jensen & Meckling, 1976). In chains, the firm can choose as outlet managers either employees who are paid a salary (and perhaps a bonus) or franchisees who are granted the right to their outlet's profits after royalties and other expenses. In both cases, an agency problem is created because the firm delegates local decision-making to outlet managers whose interests are not perfectly aligned with that of the franchisor's (Rubin, 1978).
Citation
Michael, S.C. and Bercovitz, J.E.L. (2009), "A strategic look at the organizational form of franchising", Nickerson, J.A. and Silverman, B.S. (Ed.) Economic Institutions of Strategy (Advances in Strategic Management, Vol. 26), Emerald Group Publishing Limited, Leeds, pp. 193-220. https://doi.org/10.1108/S0742-3322(2009)0000026009
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited