The Elasticity of Franchising

This paper creates a model to test whether franchising functions as product differentiation and estimates its elasticity. Using data on the average franchisee in thirty restaurant chains, the elasticity of franchising is measured at 0.252, which is similar in magnitude to values found in previous research for the elasticity of advertising of consumer product goods. The results suggest that, at least for some franchisees, the franchise system is providing product differentiation.