International Journal of the Economics and Business

Monitoring Policy and Organizational Forms in Franchised Chains

One recurring theme that emerges from empirical studies on franchising is the coexistence of franchised and company-owned units within the same chain. This paper supports the idea that mixed chains or dual distributions are efficient organizations when both the behavior of managers and the nature of local markets are costly to observe. We also show that partial monitoring, i.e. when the franchisor monitors only a subset of its outlets, represents an optimal monitoring policy. Finally, we discuss the impact of information technologies and outlet location on monitoring policy and how it may affect the proportion of franchised and company-owned units within the mixed chains.