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The Extent, Motivation, and Effect of Tying in Franchise Contracts

Steven C. Michael
Managerial and Decision Economics
Vol. 21, No. 5 (Jul. - Aug., 2000), pp. 191-201
Published by: Wiley
Stable URL: http://www.jstor.org/stable/3108318
Page Count: 11
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The Extent, Motivation, and Effect of Tying in Franchise Contracts
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Abstract

Tying in franchise contracts has been the subject of considerable antitrust litigation and theoretical analysis. Tying can enhance efficiency by increasing standardization and reducing monitoring costs, or it can be used with market power for price discrimination. In this paper, I report on the extent of tying among restaurant franchisors and test whether it is motivated by efficiency or market power considerations. The results show that the use of tying is not affected by market share or outlet share in various industry sectors, but it is affected by equipment required and by business strategy. The results are weakly supportive of efficiency and not supportive of market power.

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