The Structure of Decision Rights in Franchising Networks: A Property Rights Perspective

Abstract

This paper explains the structure of decision rights in franchising networks using property rights theory. Property rights theory explains the allocation of decision rights based on the importance of intangible assets. We submit that franchisees’ fraction of decision rights varies positively with the contractibility of local market assets and negatively with contractibility of system–specific assets. Further, franchisees’ less contractible innovation assets impact decision rights allocations more than contractible operation assets. Hypotheses tested on data from German franchisors are largely supportive. We extend the franchise literature by arguing that the contractibility of local market assets impacts the allocation of decision rights, and that decision rights allocations change for decisions involving different areas of the value chain.