Optimal franchise contracts with private cost information

Abstract 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.

[1]  Tracy R. Lewis,et al.  Optimal Retail Contracts with Asymmetric Information and Moral Hazard , 1994 .

[2]  R. Myerson.  Incentive Compatibility and the Bargaining Problem , 1979 .

[3]  E. Gal‐Or.  Optimal franchising in oligopolistic markets with uncertain demand , 1991 .

[4]  M. Petit.  Dynamic optimization. The calculus of variations and optimal control in economics and management : by Morton I. Kamien and Nancy L. Schwartz. Second Edition. North-Holland (Advanced Textbooks in Economics), Amsterdam and New York, 1991. Pp. xvii+377. ISBN0-444- 01609-0 , 1994 .

[5]  Alanson P. Minkler.  An empirical analysis of a firm's decision to franchise , 1990 .

[6]  M. Slade,et al.  Retail Contracting: Theory and Practice , 2003 .

[7]  Francine Lafontaine,et al.  Double-Sided Moral Hazard and the Nature of Share Contracts , 1995 .

[8]  B. Katz,et al.  On the existence of franchise contracts and some of their implications , 1992 .

[9]  Kabir C. Sen.  The use of initial fees and royalties in business‐format franchising , 1993 .

[10]  Inés Macho-Stadler,et al.  An Introduction to the Economics of Information: Incentives and Contracts , 1997 .

[11]  R. Lal.  Improving Channel Coordination Through Franchising , 1990 .

[12]  Dick R. Wittink,et al.  Building models for marketing decisions: past, present and future , 2000 .

[13]  Stefan Reichelstein,et al.  Value of communication in agencies , 1989 .

[14]  R. Myerson.  Optimal coordination mechanisms in generalized principal–agent problems , 1982 .

[15]  Esther Gal-Or,et al.  VERTICAL RESTRAINTS WITH INCOMPLETE INFORMATION , 1991 .

[16]  R. Romano,et al.  Double Moral Hazard and Resale Price Maintenance , 1994 .

[17]  Ralph A. Winter,et al.  The Economics of Franchise Contracts , 1985, The Journal of Law and Economics.

[18]  I. Molho,et al.  The Economics of Information: Lying and Cheating in Markets and Organizations , 1997 .

[19]  Francine Lafontaine.  Agency Theory and Franchising: Some Empirical Results , 1992 .