The Effect of Franchising on Competition: An Empirical Analysis

Much of the theoretical literature on franchising suggests that the franchisor often has incentive to decrease the level of price competition among franchised locations. Using a unique hotel dataset, this paper finds that price competition is greater among franchised properties compared to company-owned properties. While a franchisor may be taking actions to reduce price competition among her franchisees, the empirical results in this paper suggest that these actions do not result in the franchisees selecting prices that maximize the joint profits of the franchisor’s locations.