General equilibrium analysis of hold-up problem and non-exclusive franchise contract

Chih Ning Chu*, Wai Man Liu

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    In this paper, we develop a general equilibrium model that examines the emergence of non-exclusive franchise contracts in the presence of the franchisor hold-up problem. Our model of an endogenous franchising network underscores the trade-off between the cost associated with specifying and enforcing the contractual terms and the cost associated with broadening the relationships with multiple franchisors. We show that when the contracting cost relative to the relational cost is high and when the economies of specialization is low, a non-exclusive franchise contract is an optimal contractual arrangement to mitigate franchisor opportunism.

    Original languageEnglish
    Pages (from-to)674-684
    Number of pages11
    JournalPacific Economic Review
    Volume15
    Issue number5
    DOIs
    Publication statusPublished - Dec 2010

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