The logic of franchise contracts: Empirical results of Japan

This paper examines the factors determining the choice between company-owned outlets and franchising. A number of researchers have based their studies on the data of retail contracting in the US. However, there has been little empirical analysis in the case of Japan. In this paper, we provide a comprehensive assessment of various alternative hypotheses about franchising by using Japanese data. The principal-agent model of franchising that assumes risk-sharing and moral-hazard is supported by our data. 2010 Elsevier B.V. All rights reserved. * Corresponding author. E-mail address: [email protected] (M. Maruyama). 1 For a survey of the related literature, see Lafontaine and Slade (1997, 2001, 2007), and Blair and Lafontaine (2005). 2 For the literature in this area, seeMathewson andWinter (1985), Lal (1990), and Bhattacharyya and Lafontaine (1995). 3 See Brickley and Dark (1987), Norton (1988), Lafontaine (1992), Scott (1995), and Affuso (2002). 4 See Martin (1988), Norton (1988), Lafontaine (1992), Lafontaine and Bhattacharyya (1995), and Affuso (2002). 5 See Norton (1988), Lafontaine (1992), Scott (1995), and Affuso (2002). 6 See Rubin (1978), Lal (1990), Bhattacharyya and Lafontaine (1995), and Affuso (2002).