A note on franchising and wage bargaining

Publication: Working/Discussion PaperWU Working Paper

Abstract

A franchise contract relocates distributable rent between franchisor and franchisee. With decentralized wage bargaining this modifies the position of the union in wage bargaining. If the rent is relocated to the franchisor completely, then even a strong union is not able to raise the wage above reservation level in the franchisee's firm. If franchisor and franchisee negotiate on rent division, there is an incentive to increase franchise fee with the consequence that franchisee's wage is pushed down. Therefore the overall rent assigned to labor depends on the differences of labor intensity in the franchisor's and franchisee's firm. Firm owners may be able to transfer distributable rents from a firm with a strong union to one with a weak union. Additional a franchising contract shows up a first mover advantage. The franchising contract is placed before wage bargaining, benefiting the franchisor.
Original languageEnglish
Place of PublicationVienna
PublisherInst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business
Publication statusPublished - 2004

Publication series

NameWorking Papers Series "Growth and Employment in Europe: Sustainability and Competitiveness"
No.42

WU Working Paper Series

  • Working Papers Series \ Growth and Employment in Europe Sustainability and Competitiveness

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