قراردادهای فرانشیز مطلوب با اطلاعات هزینه خصوصی

This paper considers franchise arrangements in the case where the franchisee has private information about the marginal cost of sale. It is shown that the optimal contract in general leads to different margins for the parties than with common cost information. However, in special cases the same margins than with common cost information are optimal.

Franchising is enjoying an increasing popularity in business practice. For example already more than 40% of all retail turnover is allotted to franchising in the USA. Due to the desired increase in the number of self-employed people an increase in franchising is also expected in Germany. Franchising can now be found in most trade areas. Hotels and restaurants, food/beverages, furniture, clothes as well as the service area are prominent examples. Franchising can be defined as the network of a contract-giving firm (franchisor) with (in principle) independent contract takers (franchisees). The grant of rights to use labels, names, trademarks, production procedures, prescriptions, etc., of the franchisor against payment by the franchisee can be regarded as constitutive features of franchising. The payment generally consists of a lump-sum fee to be paid when entering the system as well as royalties based on gross sales. The franchise contract forms the basis for the co-operation between the franchisor and the franchisee. One focus is the declaration of obligations of the contracting parties. For example, the franchisor is responsible for the national advertising of his products, while the franchisee is responsible for advertising in local media. A complete declaration of all obligations is however not possible. Franchise contracts are generally incomplete. This is particularly true for those obligations concerning marketing activities.1 However, marketing activities of the contracting parties are influenced by the contract. This influence is to be anticipated when designing the contract. Before conclusion of a contract the parties may or may not share the same cost information. In this paper private information of the franchisee about the marginal cost of sale is assumed.2 As a benchmark common cost information is also considered. The marginal cost of sale consists essentially of the costs of presenting the relevant product as well as the costs of customer consultation and service. While the first are determined to a large extent by the specifications of the contract, the latter depends on local conditions (e.g., the local structure of population), which are better known to the franchisee. Hence, the franchisee might enjoy an information advantage relative to the franchisor.3 However, the case of common cost information might also be relevant if the franchisor has cost data from other sales areas comparable to the sales area in question. If the franchisee previously worked in another industry, the case where the franchisor is better informed about the marginal cost of sale is also conceivable. However, this case is not further examined here. How does the franchise contract in the case of private cost information differ from the case of common cost information? Clarifying this question is the topic of the present paper. The paper is organized as follows. Section 2 provides a review of related literature. Section 3 presents the basic assumptions of the analysis. Section 4 derives the optimal contract in the case of common cost information. This case serves as a benchmark for the case where a franchisee has private cost information, which is considered in Section 5. The paper concludes in Section 6.

This paper addresses the problem of contract design in franchising when the franchisee has private cost information on its marginal cost of sale. This case might be considered representative of a situation in which a so far independent dealer wants to join a franchise system and the franchisor does not have cost data from comparable sales areas. It was assumed that the franchisor first sets a contract menu, which formulates the contract components as a function of the marginal cost of sale. After setting this menu the private information is disclosed. Without loss of generality the analysis was limited to contract menus which result in truthful disclosure of the private information. In the benchmark case of common cost information the optimal contract implies a ratio of the parties margins which depends on their advertising effectiveness. Particularly, if the parties have the same advertising effectiveness then their margins are equal. Only the ratio of the margins is uniquely determined at the optimum. With private cost information the optimal contract generally differs from that with common cost information. Comparing the two cases the franchisee receives a higher margin if he has a higher advertising effectiveness than the franchisor. However, the same margins as with common cost information result if the parties have the same advertising effectiveness. The current analysis can be extended in a number of ways. First of all, it would surely be more realistic if the private information of the franchisee refers both to the marginal and fixed cost of sale. The contract components would then have to be formulated as function of these two variables. However, the analysis of this case becomes more difficult because a problem of control of a system with distributed parameters is involved. Secondly, it might often be more appropriate to assume private information for the franchisor as well. For example his private information could refer to the marginal cost of production. In this case both parties have private information. However, again the analysis would become more difficult because in general the revelation principle is then no longer applicable.