Why include royalties in distribution contracts? Evidence from France

Abstract

PurposeThe purpose of this paper is to understand the presence of royalties in a number of retail contracts, recognising that some distribution networks do not use this monetary provision.Design/methodology/approachThe paper is based on the theory of contracts. It provides an econometric analysis of recent French data using the main theoretical explanation concerning the presence of royalties in distribution contractual relationships.FindingsThe evidence suggests that the presence of royalties in distribution contracts depends on the management by the producer of the brand value: the transmission of concepts and know‐how to retailers and advertising and promotional campaigns.Research limitations/implicationsAs a result of data availability, the paper focuses on the presence or the absence of royalties in distribution contracts. Future research should aim to explain the level of royalty rate, i.e. the share of the retailers' turnover accruing to the producers.Practical implicationsThis paper offers an understanding of the presence of royalties in the contractual relationships between producers and retailers, providing practitioners with a better basis for making decisions in designing distribution contracts.Originality/valueThis paper enlarges the empirical evidence concerning the monetary provisions for several kinds of distribution networks based on a brand name and considers different types of producer involvement in the network.