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Price control and advertising in franchising chains
Author(s) -
Ater Itai,
Rigbi Oren
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2212
Subject(s) - control (management) , advertising , business , test (biology) , marketing , industrial organization , economics , management , paleontology , biology
This study investigates how franchising chains use advertising to enhance coordination and improve their control over prices set at franchised outlets. We argue that chains use price advertising to inform customers about their desired prices, thereby influencing franchisees to adopt the advertised prices although they are not contractually required to do so. We test our hypotheses using rich outlet‐level price data collected before and after a U.S . nationwide advertising campaign by M c D onald's. Our findings indicate that advertising is an effective mechanism that franchising chains use to improve their control over franchisees, enhance uniformity, and reduce franchisee free‐riding . Copyright © 2013 John Wiley & Sons, Ltd.