The real price of intellectual property: evaluation of franchisees’ benefits

Abstract

It is demonstrated that models of royalty rate calculations developed for licensing should not be applied to franchising because the benefits received by a licensee and a franchisee are different. It is proposed that the risk reduction generated by the franchisor’s effective technologies and the managerial support given to a franchisee also be included in the model of royalty calculation. It is demonstrated that a franchisee may wish to acquire the franchise even if the franchisor takes the full amount of additional income or if this additional income is negative.