The Research Of Franchise Contract Arrangements In Franchising System

The focus of this paper is on the arrangement and its efficient test of franchise contract. In a franchising system, the stipulating of a franchise contract is the most important, generally, a franchise contract includes franchise initial fee, royalty fee, caution money, advertising fund ,whole sale price of the material, and so on. About the franchise royalty fee, there are two different ways to calculate: one is sales-based royalty(shorten as "SBR"), and other is margin-based royalty(shorten as "MBR"), so this caused two different franchise contracts, shorten as SBR and MBR contract. In the literature, many scholars have researched SBR contract, but they considered only three factors: the initial fee, royalty fee and price, not including the effect of wholesale price, while for the contract way of MBR, there are little study. Based on this background, this paper studied this two different contract ways, MBR and SBR, adding the factor of wholesale price. This paper divided two large parts, the first one is supposing that the relationship of franchisor and franchisee is uncooperative, that is, they bid directly according an order, then gained a series optimal payment schemes of this two different contract ways, farther, this paper made a comparison of these payment schemes, and the results showed that the MBR contract is better than the SBR one as a whole. The second part, this paper relaxed the supposition of noncooperation, supposing the relationship of franchisor and franchisee is cooperative, and then test whether the franchisor and franchisee can improve the payment schemes gained from the first part through cooperating, in this part, we used the theory of Parreto efficient, and the results showed that, the MBR contract way has reached the optimal point of Parreto, while the SBR contract way hasn't, which can be mended through cooperating, and then increasing the profits of each other farther. Moreover, to resolve the problem how to divide the added profits, this paper used the theory of Parreto-Arrow risk aversion and Nash bargaining model.