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Beneficially Constraining Franchisor’s Power

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Economics and Management of Networks

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

Typical contracts assign both coercive and non-coercive means of power to the principal’s side, providing the agent with a comparably small range of countervailing anti-power. Initially agents are therefore vulnerable to opportunistic principal behavior and will rationally anticipate this threat upon signing a contract.

In this paper we analyze various forms of power and explain their asymmetrical allocation in the franchising industry. We demonstrate how franchisors restore those shifts in power that seem to disorder the desired balance by performing contractual, financial and organizational adjustments. The nature of these measures suggests that franchisors should cooperate with agents despite their freedom to behave opportunistically. According to empirical data, the better a franchisor is able to credibly alleviate a franchisee’s fear of being exploited by principal opportunism, the stronger the growth generated in the entire franchise system that embraces both the company-owned and the franchise arms.

We acknowledge financial support from the Konrad-Adenauer Foundation for this work. Moreover valuable ideas and comments have been provided by Frank Uhlen and an anonymous referee of the EMNet 2005 panel. An earlier version of this work is part of the SSRN Working Paper Series: http://ssrn.com/ abstract=764126.

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Author information

Authors and Affiliations

  1. Institute for Strategic Management, University of Muenster, Leonardo-Campus 18, 48149, Muenster, Germany

    Thomas Ehrmann & Georg Spranger

Authors
  1. Thomas Ehrmann
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  2. Georg Spranger
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Editor information

Editors and Affiliations

  1. IGR-IAE, University of Rennes 1, 11 rue J. Macé CS 70803, 35708, Rennes, Cedex 7, France

    Gérard Cliquet

  2. Faculty of Business and Information Technology, Department of Business and Management, University of Kuopio, Mikrokatu 1F, 70211, Kuopio, Finland

    Mika Tuunanen

  3. RSM Erasmus University, Burg.Oudlaan 50, Room T8-56, 3062 PA, Rotterdam, The Netherlands

    George Hendrikse (Chair Economics of Organization) (Chair Economics of Organization)

  4. Center of Business Studies, University of Vienna, Brünner Str. 72, 1210, Vienna, Austria

    Josef Windsperger

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© 2007 Physica-Verlag Heidelberg

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Ehrmann, T., Spranger, G. (2007). Beneficially Constraining Franchisor’s Power. In: Cliquet, G., Tuunanen, M., Hendrikse, G., Windsperger, J. (eds) Economics and Management of Networks. Contributions to Management Science. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1758-4_8

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