Product Line Design for a Distribution Channel
Marketing Science
Entrepreneurs, Contracts, and the Failure of Young Firms
Management Science
The Dynamic Value of Hierarchy
Management Science
Franchising, Ownership, and Experience: A Study of Pizza Restaurant Survival
Management Science
The Effects of New Franchisor Partnering Strategies on Franchise System Size
Management Science
Benefits of Channel Discord in the Sale of Durable Goods
Marketing Science
Network Effects and Technology Licensing with Fixed Fee, Royalty, and Hybrid Contracts
Journal of Management Information Systems
Exclusive Territories and Manufacturers' Collusion
Management Science
Hi-index | 0.00 |
Franchisees within large branded chains loudly complain of a form of channel conflict known as "encroachment" or "impact." Encroachment occurs when franchisors add new units of their brand proximately to their franchisees' existing units. Franchisees claim that their revenues have substantially decreased as a result of encroaching same-brand entry. The topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers. Yet, until now, evidence of encroachment has been strictly anecdotal. This paper provides the first systematic evidence of encroachment. Using revenue data from the Texas lodging industry in the 1990s, I find that when franchisors approve new same-brand units in the vicinity of incumbent units, these new units cannibalize the incumbents' revenues. In contrast to the result for franchisors, the addition of a new unit by company-owned brands in the vicinity of same-brand units is associated with an increase in the incumbents' revenues. This contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion. This finding informs theory on governance forms and exclusive territories. Implications for practitioners and policy are also discussed.