Dual Distribution in Franchising
In this paper we oﬀer an explanation for the practice of dual distribution. the simultaneous use of franchises and company owned outlets for distributing new products. Our explanation rests on the observation that franchisors often acquire private information, not available to franchisees, on product demand through marketing eﬀorts. Under this assumption of asymmetric information, we show that a franchisor will use both direct ownership as well as the franchise contract to convey information about a new product. This explanation for dual distribution relies neither on capital market imperfections nor upon location-speciﬁc factors, in contrast to alternative explanations advanced in the literature Testable implications of the signaling model are discussed.
Gallini, Nancy and Lutz, Nancy A., "Dual Distribution in Franchising" (1991). Cowles Foundation Discussion Papers. 1216.