Ownership Form, Managerial Incentives and the Intensity of Rivalry

This study investigates how differences in ownership form—between franchised and company-owned units—affect managerial incentives and competitive pricing in different oligopolistic contexts. The authors argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. The authors also found that a unit’s ownership form affected its rivals’ competitive behavior. The results indicate that company-owned units’ ability to raise their own and rivals’ prices in highly concentrated markets led to their higher performance relative to franchised units.