A Property Rights View on Network Dynamics: From Franchising to Licensing



The paper examines the conversion from franchising to licensing due to the increase of contractibility of the franchisor's system-specific assets as determinant of the allocation of residual decision rights in networks. Based on the property rights approach, residual decision rights must be allocated according to the distribution of intangible knowledge assets between the franchisor and franchisee. Our analysis derives the following hypothesis: The more contractible the franchisor's system-specific assets for the generation of residual surplus, the less residual decision rights are assigned to the franchisor and the higher is the tendency toward licensing. This property rights hypothesis is examined with the case study of Getifix. In addition, we investigate the impact of strategy change on the contractibility of system-specific assets and hence the governance form. We argue that the change of Getifix' vertical integration and product portfolio strategy additionally increased the standardization of system-specific know how and consequently resulted in a higher tendency toward licensing. This study presents the first empirical evidence that the contract dynamics from franchising to licensing depends on the change of contractibility of intangible knowledge assets between the franchisor and the franchisee.
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George Hendrikse