Price control and advertising in franchising chains

Itai Ater, Oren Rigbi

Research output: Contribution to journalReview articlepeer-review

Abstract

This study investigates how franchising chains use advertising to enhance coordination and improve their control over prices set at franchised outlets. We argue that chains use price advertising to inform customers about their desired prices, thereby influencing franchisees to adopt the advertised prices although they are not contractually required to do so. We test our hypotheses using rich outlet-level price data collected before and after a U.S. nationwide advertising campaign by McDonald's. Our findings indicate that advertising is an effective mechanism that franchising chains use to improve their control over franchisees, enhance uniformity, and reduce franchisee free-riding.

Original languageEnglish
Pages (from-to)148-158
Number of pages11
JournalStrategic Management Journal
Volume36
Issue number1
DOIs
StatePublished - 1 Jan 2015

Keywords

  • advertising
  • agency theory
  • franchising
  • opportunistic behavior
  • pricing

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