Franchising arises when a franchisor allows a dealer to exclusively sell its products. This distribution method is reflected in the business models of car manufacturers and fast-food chains. It aims to promote competition but needs careful regulation to prevent anti-competitive effects.
- When the franchisor manufactures a product and licenses a dealer to sell it exclusively, a distribution method of franchising exists.
- This type of agreement, often seen in arrangements between auto manufacturers like Ford or General Motors and their network of individual dealerships, can be beneficial for promoting competition within a brand's authorized dealers.
- However, such agreements need to be carefully structured because if exclusive contracts are given to a single large retailer, it may lead to anticompetitive effects, harming the market and reducing consumer choices.
- In general, a franchise refers to a licensing relationship where the franchisor provides the franchisee with the rights to use its business model, brand, and support services in exchange for a franchise fee and ongoing royalties.
- This business strategy has been widely adopted in various industries, notably in fast-food chains like McDonald's.
- Exclusive dealing between manufacturer and dealer under franchising agreements aligns with efforts to establish brand consistency and competitive dealership environments.