Complementarities between franchise contract duration and multi-unit propensity in franchise systems

This article explores the determinants of two crucial decisions in franchising relations: the contract length and the franchisers' propensity to allow franchisees to own several stores. The results show that franchisers alleviate franchisees' fears of hold-up by providing them with longer contract length. The findings also show that the lower the contracting experience of the franchisers and the higher the potential free-riding in a franchise system, the shorter the contract duration. Regarding multi-unit franchising, franchisers have a lower propensity to allow franchisees to own several outlets when the cost of monitoring outlet managers are high, and they have a greater propensity to offer multi-unit opportunities when free-riding appears to be a threat. The findings also show the existence of complementarities between the decisions studied, such that they constitute a system of interdependent elements.