Research On Enterprise Franchising Contract Arrangement And Monitoring

Based on theory of industrial organization, game theory and principal-agent theory, this paper studies franchising contract arrangement under the conditions with the same effect of the ads (homogenous franchisees) and the different effect of ads (heterogeneous franchisees), the franchising buy-back contracts arrangement under demand uncertain and the effective monitoring of the franchisees'free-riding behavior by franchisors.First of all, aiming at the advertisement effect in franchising, this paper separately discusses franchising contract arrangement under the conditions with the same effect of the ads (homogenous franchisees) and the different effect of ads (heterogeneous franchisees). The results show that: under certain conditions, through designing optimal franchising contracts, the franchisor will spur the franchisees to provide the committed levels of ads and service for the entire benefits maximization of the franchising system. Under the case with homogenous franchisees, the range of the royalty fee rate and advertisement fee is not only affected by the franchisors'and the franchisees'cost-effectiveness, but also by the coefficient of price-sensitive. Under the case with heterogeneous franchisees, the range is affected by the difference of advertising as well. Thus, the franchisor should consider all these factors when deciding the rates under the two conditions.Then, aiming at the cases of full returns and no returns strategies by the franchisors, this paper respectively analyzes the wholesale prices, sales strategy and expected revenues under the two cases. The results show that: under no return policy, when the demand is high, the franchisee sets the price to clear all the order quantity; when the demand is low, the sale price is affected by the demand stochastic fluctuation. But under full return policy, whether demand is high or low, the franchisee establishes the sale price to meet the revenue maximization. The franchisor's expected revenue under no returns is bigger than that under full returns. But the difference between high and low sale prices under full returns is smaller than that under no returns.Further, aiming at a franchising system with one franchisor facing two franchisees in the same market, the paper analyzes the franchisees'free-riding behavior and the monitor by the franchisor. The results show that: when the franchisor doesn't monitor, if the service quality levels provided by the two franchisees have large externality, the franchising system has a short duration when the service cost is within a certain range and the franchisees will be free riding, thus both sides will not provide service quality. However, when the franchising system has a long duration, if the future benefits are important to franchisees, the franchisee may adopt the trigging strategies to prevent the free-riding behavior. If the franchise system has a short duration, or, the future discount rate is small though the duration is longer, it will be necessary for the franchisor to monitor the franchisees free-riding behavior.