The Study Based On The Game Theory About Interest Distribution Between Franchisor And Franchisee

If franchisor opens a new store near an existing franchised store whose stores’brand are as same as the new one, it would inevitably leads to an extent of cannibalization conflicts between both sides who argue for their individual maximized benefits, so the relationship between franchisors and franchisees is very subtle. The conflict in the benefit distribution between franchisor and franchisee is not only cooperation but also a game. If the both sides can get greater interests than nothing to do on the new outlets development, both sides could achieve win-win situation, otherwise any side of them would quit the cooperation.The study is striving to research the insights by representing the game process between franchisor and franchisee. It is found that even though both sides can reach at Nash equilibrium point in one-shot game, the conflicts of no exclusive territory protection would harm and constrain the committed relationship in the franchising system. In order to develop franchise business, franchisors shall take a long term strategy into consideration when the management cost raises higher and higher. The purpose of this study is to provide a reference for franchisor’s business decision to build a long-run healthy and sustainable development of the franchise system.