Abstract
This paper extends the work of Mathewson and Winter (1985) in the field of franchising. Given the hypothesis that a franchise contract ensures quality compliance at a lower cost relative to alternative organizational structures, the existence of dual organizational structures within the same franchise chain is inadequately explained. This paper extends the basic model of Mathewson and Winter into a spatial framework, demonstrating that nonconvexities in monitoring costs will produce dual organizational structures within the same chain.,Essay,Published.