The Organizational Choice Decision in Business Format Franchising: An Empirical Test

Abstract

This paper empirically investigates the franchising make-or-buy decision providing a comprehensive test of the economizing perspective of organizational choice while controlling for the potential influence of resource scarcity factors. The study reported here extends the extant empirical franchising literature in three ways. First, this study takes the outlet as the unit of analysis and explores organizational choice within the franchise system. Second, the analysis is more inclusive, simultaneously accounting for both of the component elements of the free-riding hazard. And third, this study provides one of the rare empirical investigations of the adoption of multi-unit franchising — the ownership of two or more outlets by a single franchisee. The econometric analysis, using discrete choice methods, provides strong support for the hypothesis that ownership mode of individual outlets (single-unit franchise, multi-unit franchise or company-owned outlet) turns on the relative levels of the contracting hazards present. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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