Franchising is an important and controversial form of vertical integration. Allegations of opportunistic behavior by franchisors have led to calls for public regulation and in some states "fairness in franchising" laws. The advisability of such regulation depends on the long-run incentives to franchise. If franchising is a temporary step on the path to complete ownership integration, regulation may be called for. Alternatively, if complete or partial franchising is a permanen t market solution, regulation is at least contestable. This paper offer s new evidence on the incentives to franchise. Copyright 1988 by American Economic Association.
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