Ownership form, Managerial Incentives, and the Intensity Of Rivalry

Abstract

JAVIER GIMENO INSEADThis study investigates how differences in ownership form-between franchised and company-owned units-affect managerial incentives and competitive pricing in different oligopolistic contexts. We argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. We also found that a unit's ownership form affected its rivals' competitive behavior. Our results indicate that company-owned units' ability to raise their own and rivals' prices in highly concentrated markets led to their higher performance relative to franchised units. pants at the SMS, AOM, CCC, and Harvard Strategy conferences, and seminar participants at HEC, the University of Amsterdam, Erasmus University, and Tilburg University for their helpful comments. We also appreciate the help of Source Strategies, Inc., and the Texas Comptroller's Office for their support with data-related issues. We would like to thank Associate Editor Amy Hillman and the three anonymous reviewers for their valuable feedback and suggestions, which helped improve the article significantly.1 As used here, "managerial incentives" rests on the assumption that managers make economically rational decisions that maximize their payoffs. These incentives thus include, but are not limited to, incentive or bonus plans.

Measures of Competitive Intensity – Analysis Based on Literature Review

“…Authors regard it mainly as complementary to more complex indexes (Wu, 2012;Jankowska and Bartosik-Purgat, 2012), which is also confirmed by the procedure used in the literature review, without indicating a single publication in which it would constitute a single method of measuring the intensity of competition. The number of competitors is most commonly used in conjunction with the Herfindahl--Hirschman Index (Li et al, 2008;Vroom and Gimeno, 2007), as well as multi-dimen sional indexes of competition intensity (Ye et al 2008), or even as one of the points in the questionnaire (Tsaur and Wang, 2011). …”

“…The Herfindahl index takes into account the market shares of individual actors or, more accurately, the sum of the squares of these shares (Jermias, 2006;Vroom and Gimeno, 2007;Bajtelsmit and Bouzouita 1998). HHI was referred to in eight publica tions selected as part of a systematic literature review -in seven as the basic measure of competition intensity.…”

“…HHI was referred to in eight publica tions selected as part of a systematic literature review -in seven as the basic measure of competition intensity. Some researchers use HHI to measure the strength of com petition, despite being fully aware of the fact that it is a measure of concentration (Jermias, 2008;Vroom and Gimeno, 2007;Jermias, 2008;C.X. Chen et al, 2015), while others use HHI for measuring competition intensity (Li et al, 2008).…”

Performance in Franchise Systems : The Franchisee Perspective

“…Given the contingency theory, Yin and Zajac (2004) studied how flexible and decentralized structures moderate the relationship between franchising and performance. Vroom and Gimeno (2007) examined the local competition as a moderator in franchised outlets, and found that both franchised and company-owned outlets benefit from having few competitors, but company-owned outlets benefit more.…”

“…The competitive pressure of the marketplace affects firm performance as well (Mesquita et al, 2008). Vroom and Gimeno (2007) examined the local competition as a moderator in franchised outlets and found both franchised and company-owned outlets benefit from having fewer competitors.…”