Franchisor Power or Value Creation? Economic Evidence on the Motivations for Vertical Contract Provisions
1 January 2001
By Outside Consultant Dr. James Brickley
Are franchise relationships one-sided contracts of adhesion? Or, alternatively, are they mutually beneficial contracts between franchisors and franchisees; where franchisees assess the value implications of contract provisions and adjust their demands for franchises accordingly? In the first case, contract terms are determined by the strong bargaining power of the franchisor. In the second, they are determined by a joint interest in creating value. Decisions in both contract and antitrust suits, including franchise cases, can be influenced by a court's view of the motivations for provisions in vertical contracts. This monograph summarizes the results of a recent study in which Dr. Brickley provides empirical evidence that supports the value-creation alternative for franchise contracts.
