The Effect of Franchising on Store Performance and Consumer Utility Public Deposited

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  • March 20, 2019
  • Ackermann, Jeffrey
    • Affiliation: College of Arts and Sciences, Department of Economics
  • I estimate the effect that franchising a store has on its performance. There is a substantial literature predicting that a franchisee-owned store will generate higher profits than a franchisor-owned store, all else equal. However, attempts to estimate the effect of franchising on store performance are hampered by an important selection issue: the franchisor may choose to assign the least desirable locations to franchisees. I overcome this issue by using a 2007 corporate sale that resulted in all franchisor-owned Applebee's stores in Texas being sold to franchisees as a source of exogenous variation. While I do not observe store profits, Texas makes store-level alcohol sales data available for all bars and restaurants that have a liquor license; I use alcohol revenues as a proxy for store performance. In the first chapter, I provide a review of relevant literature, create a model of a profit-maximizing franchisor to illustrate the identification challenge that I face, and give an overview of my data. In the second chapter, I first find evidence that both observable and unobservable location-level factors were important in Applebee's decision to own or franchise a store prior to the corporate sale. I then use a linear model with store level fixed effects to estimate the effect of franchising on store performance. In the third chapter, I create a structural model that uses consumer and store locations to predict alcohol sales for all bars and restaurants with a liquor license in Texas. Using this model, I find that franchising an Applebee's store increases its alcohol revenues by seven percent. I also find that franchising a store produces a consumer utility gain comparable to a 2.8-mile reduction in distance from the individual's home to the store.
Date of publication
Resource type
Rights statement
  • In Copyright
  • Tauchen, Helen
  • Williams, Jonathan
  • Biglaiser, Gary
  • McManus, Brian
  • Flabbi, Luca
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2017

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