TITLE

ADOPTION,TRANSFERS, AND INCENTIVES IN A FRANCHISE NETWORK WITH POSITIVE EXTERNALITIES

AUTHOR(S)
Nault, Barrie R.; Dexter, Albert S.
PUB. DATE
September 1994
SOURCE
Marketing Science;Fall94, Vol. 13 Issue 4, p412
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
We study franchise arrangements that allow franchisees with exclusive territories to own their customers. This permits franchisees to benefit from positive externalities in the franchise network through interfranchise transfers based on the purchases by their customers at other franchises on the network. Using the structure of a single franchisor and many franchisees, we show that, in general, interfranchise transfers between franchisees and incentives for franchisee investment in the expansion of their customer base are critical both to the size and to the benefits derived from the franchise network. Specifically, we find that when individual franchisees make investments in marketing effort to increase their customer base, the franchisor's setting of the interfranchise transfer trades off the positive effects on network size with the negative effects of removing franchisee incentive for investment. This result is due to the fact that interfranchise transfers encourage adoption, but discourage full investment in marketing effort. As compared to first-best franchisee investment, use of the royalty and the inter-franchise transfer directly dissipates franchisee profits, and indirectly dissipates franchisee profits through less than universal adoption, thereby causing franchisees to underinvest. As compared to traditional franchise systems, however, use of the interfranchise transfer results in franchises making greater investments than they otherwise would. (Channels of Distribution; Pricing Research)
ACCESSION #
4471997

 

Related Articles

  • 2 MACRO-ACCESSIBILITY IN CANADA: 2.5 MARKETING STRATEGIES.  // Canada Economic Studies;2007, p18 

    The article presents a strategic assessment of Canada relative to its marketing strategies. It reports that sales to Canadian companies are managed through relatively short marketing channels, likewise in many cases products send directly from manufacturer to end-user. Its distribution channels...

  • The Socioeconomic Consequences of the Franchise System of Distribution. Hunt, Shelby D. // Journal of Marketing;Jul1972, Vol. 36 Issue 3, p32 

    The author explores and evaluates both the functional and dysfunctional consequences of a system of distribution which accounts for approximately 25% of total consumer goods' expenditures in the United States.

  • Non-Traditional Franchising--Staying Ahead of the Wave. SANDERS, LEE // Franchising World;Jul2011, Vol. 43 Issue 7, p65 

    The article looks at non-traditional franchise development trends and how a non-traditional (NT) franchisor operates to get ahead of the wave of NT franchise development. It projects the future development of NT franchising with the proliferation of traditional consumer brands and involvement of...

  • East meets West: doing retail in China. Ogen-Barnes, Steve // Businessdate;Aug2006, Vol. 14 Issue 4, p1 

    The article talks about the presence of Australian businesses in China. It is said that China has large population and high growth opportunities, particularly in retail market. Accordingly, many of those overseas businesses, like Australia, are doing retail trade in China. Australia is planning...

  • Off the shelf. Levine, Bernard; Elliott, Heidi; Steffora, Ann // Electronic News;11/16/98, Vol. 44 Issue 2245, p52 

    Presents news briefs concerning the electronic industries, compiled as of November 16, 1998. Presentation of a lifetime achievement award to Seymour Schweber by NEDA; Signing of a national franchise agreement between Arrow Electronics and Stewart Connector Systems; Agreement of Bell...

  • The Lexus Ownership Experience.  // Brandweek;11/15/99, Vol. 40 Issue 43, p38 

    Focuses on Lexus ownership experience. Customer relations at Lexus; Management of Lexus franchising and dealership; Overview of marketing distribution channels at Lexus.

  • 7. Distribution and Channels of Distribution. Spencer, Ulric M.; Schendel, D. E. // Journal of Marketing;Jul1964, Vol. 28 Issue 3, p99 

    The article presents a section of abstracts related to distribution of goods and channels of distribution. They include "Direct Selling of Electrical Appliances" and "The Franchise of Distribution."

  • 4. MACRO-ACCESSIBILITY IN ARGENTINA: 4.6. MARKETING STRATEGIES.  // Office Furniture in Argentina: A Strategic Reference, 2003;2003, p134 

    Chapter 4.6 of the book "Office Furniture in Argentina: A Strategic Reference, 2003" is presented. It discusses the economic activity in Argentina. It highlights the country's distribution channels, its retail markets, its marketing strategies and research, its franchising activities, its...

  • TOWARD A GENERALLY ACCEPTED, CONCEPTUALLY COHERENT CHANNEL POWER LEXICON. Gaski, John F. // AMA Winter Educators' Conference Proceedings;1988, p256 

    Focuses on the elemental constructs and terminology of the area of study surrounding power channels of distribution in France. Conceptual clarification and insightful nomenclature of the power distribution; Reconciliation of competing terms and conceptual distinction of distribution; Summary of...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sign out of this library

Other Topics