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Author ORCID Identifier
Open Access Dissertation
Doctor of Philosophy (PhD)
Year Degree Awarded
Month Degree Awarded
Debi Prasad Mohapatra
Economics | Industrial Organization
In this dissertation, I explore behavior of firms in franchising, a form of vertical structure that lies between vertical integration (a single firm) and vertical separation (separate firms). Even though franchising contracts outline legal terms and conditions for franchisees (downstream firms) and obligations for franchisors (upstream firms), conflicts between these two parties can arise due to information asymmetries and principal-agency problems. Rather than analyzing these problems, I explore specific conditions in which either a franchisee or a franchisor can exercise more control over the other party and thereby increase its profits. Specifically, I examine the role that: a) multi-unit ownership plays on franchisees' market power, and b) multi-market contact plays franchisors' ability to engage in supracompetitive pricing.
The first chapter explores the effect of multi-unit ownership in isolated markets (low and mid-scale hotels near highway exits in Texas). I refer to multi-ownership operation to the case when a franchisee operates more than one hotel (either under the same brand or under different brands). Due to the distance to their franchisors, franchisees in these markets are likely to have more control over operations; in other words, the standardized management that is common in franchising may not be enforced with the same intensity. Using demand estimation of a random coefficient model of demand and counterfactual analyses, I find that franchisees who engage in multi-ownership exert more market power which, in turn, leads to higher prices. The second chapter investigates how multimarket contact between franchisors may facilitate collusive pricing. I focus on competition within a large metropolitan statistical area (MSA) where hotels face the same rivals across different geographic markets within the MSA. I contribute to the literature in two ways. First, I use clustering algorithms to delineate the mutually exclusive markets within the MSA. Second, I consider and estimate the degree to which upstream firms' control downstream pricing. Using a structural approach, I find evidence that supports the notion that multimarket contact enhances supracompetitive pricing and that modeling (rather than assuming) the degree of vertical control plays a key role in the estimation.
Koh, Jung Hwan, "Essays on Franchising in the Service Industry" (2021). Doctoral Dissertations. 2351.