The Optimum Contract in Franchising: A Comparison of the Two Royalty Structures Taking into Account the Option for the Franchisee to Return Commodities to the Franchisor
-
- Kawachi Yuya
- Department of Technology Management for Innovation, Graduate School of Engineering, The University of Tokyo
-
- Imai Junichi
- Department of Administration Engineering, Faculty of Science and Technology, Keio University
Bibliographic Information
- Other Title
-
- フランチャイズビジネスにおける最適契約~商品の廃棄を考慮したロイヤルティ形態の比較~
- フランチャイズ ビジネス ニ オケル サイテキ ケイヤク ショウヒン ノ ハイキ オ コウリョ シタ ロイヤルティ ケイタイ ノ ヒカク
Search this article
Abstract
This paper analyzes the optimum form of royalty structures between sales-based royalties (SBR) and margin-based royalties (MBR) in franchise business. A choice of the royalty structure obviously affects expected revenues for both franchisors and franchisees. We mainly investigate the effect of a franchisee's option to claim refunds under demand uncertainty. Given the royalty structure, on the one hand, the franchisee chooses the order quantity of goods to maximize the franchisee's expected profit. On the other hand the franchisor, which anticipates the franchisee's decision, can determine a transfer price of the goods to maximize the franchisor's profit. In this paper we formalize this relation as an optimization problem and analyze the solution. Our analysis reveals that (i) franchisors should choose the MBR in the presence of the demand uncertainty, (ii) the existence of the option to claim refunds has a non-negative impact on the franchisee's profit, especially when the volatility of the demand is high. We also conduct sensitivity analyses to examine the effect of each parameter on the expected profits for franchisors.
Journal
-
- Journal of Real Options and Strategy
-
Journal of Real Options and Strategy 4 (1), 1-32, 2011
The Japan Association of Real Options and Strategy
- Tweet
Details 詳細情報について
-
- CRID
- 1390001205317889024
-
- NII Article ID
- 130000670598
-
- NII Book ID
- AA12351380
-
- ISSN
- 18841635
- 18815774
-
- NDL BIB ID
- 11025585
-
- Text Lang
- en
-
- Data Source
-
- JaLC
- NDL
- Crossref
- CiNii Articles
-
- Abstract License Flag
- Disallowed