Hospitality Question – Franchising and Licensing

Question 1

This research intends to address two issues concerning franchising that have been ignored in the literature. One of these main issues is the fact that the experimental work in franchise areas has been almost wholly cross-sectional leading to substantial issues of causal implication (Roider, 2012). The second issue is that economists are less focusing on to the legal settings where contracts of franchise are enforced and interpreted. By means of a panel of data, the researchers make developments in these areas by employing panel data on activities that involve franchise of the most famous and largest fast-food chains. This enables them to analyze the impacts of the laws that limit the use of termination clauses in contracts of the franchise.

Question 2

The research was conducted using cross-sectional studies that provided adequate data concerning contracting in the fast-food business. Through panel data, the researchers study the impacts of two laws: the termination restriction law of 1992 that was enacted in Iowa along with the eradication of a related law in the Columbia District (Roider, 2012). Panel data provided them an opportunity of parsing out the idiosyncratic differences throughout the states. To make statistical inferences, the researchers explored new methods since their analyses focused on extremely limited variation in the legal variation that provided their statistical identification. While the cross-sectional studies provided significant information needed for their research, they, however, had many limitations resulting from variable biases that were omitted.

Question 3

The sample of this research incorporates two significant laws: the termination restriction law of Iowa and the District of Columbia law. The samples were determined by comparing the extent of franchising in different states that restricted termination and those that failed to restrict termination. Researchers found out that there was a higher share in non-restricted states compared to restricted states through the use of cross-sectional studies (Roider, 2012). To address each question’s efficiency, the researchers analyzed the industries separately to primarily serve the non-repeat customers. They found the effects to be more pronounced. In this case, cross-sectional studies were mostly used to determine the samples provided.

Question 4

This article provides several conclusions. One major conclusion is that the termination laws vary in their effects according to different states depending on the efforts made by parties in contracting around the law. According to the researchers, the restriction of Iowa termination was profoundly undesirable when it comes to both economic and statistical significance particularly on contracting (Roider, 2012). However, the D.C law was weaker and had no consequence. This was constant with the idea of franchising regulation biting especially when it becomes challenging in contracting. This point has been ignored by much franchising literature even though it seems to be trivial. The researchers believe that they have made substantive and methodological improvements in analyzing the franchising field even though their data do not provide them an opportunity to investigate the economic efficiency of termination clauses.

Question 5

This research can be put into use in many practical ways in a franchisee business. Franchising is critical and is becoming the most studied organization form. This research can be used to analyze how incentives and contracts are used in reducing agency and transaction costs and the general nature of inter versus interim contracting (Roider, 2012). The insights provided in this research can also help in explaining how franchising exists as a business form. The two specific laws examined in this research also illustrate how the regulation of contractual relationships between franchisees and franchisors can significantly affect how businesses are organized and their contracts.

Question 6

The most important aspect of this article is the information provided concerning the termination clauses found in franchise contacts. According to the researchers, franchise contacts lead to opportunism problems (Roider, 2012). On the part of a particular franchisee, poor performance leads to negative externality borne by franchisees and the franchisor. This leads to the degradation of trademark value. The researchers highlight that the broad termination rights can create problems of opportunism on the part of the franchisor. Therefore, franchisors must engage in cream-skimming to terminate the contracts especially when a particular franchise proves to be profitable. This article provides adequate information concerning franchising and critical concerns that need to be paid attention to business.

Question 7

What I found least important in this article is are the worries that researchers have in their research. The researchers state that they find that their data does not allow them to examine the economic efficiency of termination clauses (Roider, 2012). As experts in their field, they must examine every method used to get accurate and significant results and limit the study limitations. I also find the results on the negative effects of the restriction laws in Iowa and D.C to be least important since they do not address the most critical issues. What the researchers should focus more on, are the significant steps that can be taken to ensure that the regulation of termination clauses does not affect franchising.

Reference

Roider, A. (2012). The Effect of Contract Regulation on Franchising. Journal of Institutional and Theoretical Economics JITE, 168(1), 58-61.