Bilateral Moral Hazard and Profit-sharing Vertical Restraints: Evidence from European Contract Data
Abstract: This paper investigates the choice of the two profit-sharing vertical restraints within franchising networks: the royalty rate and the up-front fee. It is based on the theoretical and empirical literature concerning share contracts in the framework of a double-sided moral hazard. We use a three countries European dataset, regarding a wide range of sectors, in order to test several assumptions concerning the choice of the profit-sharing provisions within franchise contracts. The estimations are partly consistent with the analytical context.
