Provisions to Be Negotiated in Franchise Contracts: The Case of Spanish Chains

Abstract

This paper focuses on franchise contract design, identifying different provisions to be included in contracts and testing the contractual heterogeneity in the number of provisions across chains. Analyzing 74 Spanish franchise contracts, we identify 157 different provisions and document notable differences in contract design. Furthermore, we observe that franchise agreements are unbalanced: contracts cover franchisees’ obligations more than franchisors’ obligations. This asymmetry can be explained because franchise contract is the basic tool for the franchisor to attenuate franchisees’ opportunism. However, franchisees may use alternative safeguards such as franchisor reputation. Finally, we also observe that there are provisions that modify others, changing their literal meaning. Given that such interactions have hardly been studied, more research is needed to measure how they modify parties’ rights and obligations.