Contents

• Pages: 3-11

CONTENTS

Foreword ................................................................................................ xiii

Preface .................................................................................................... xv

Chapter I

INTRODUCTION .................................................................................. 1

A. Methods

of

Distribution ..................................................................... 1

1.

Direct Sales to End-Users ............................................................ 1

2. Sales to Dealers and Distributors ................................................. 2

3. Sales through Franchisees ............................................................ 3

a.

Definition

of

a Franchise ....................................................... 3

b. Federal Regulation: The

FTC's

Rule on Franchising ........... 4

(1) Three-Pronged Franchise Definition .............................. 5

(2) Business Opportunity Relationships ............................... 5

(3) Exemptions ..................................................................... 5

c. State Regulation .................................................................... 6

d.

Economic Characteristics

of

Franchise Systems ................... 7

(1) The Role

of

Economies

of

Scale ..................................... 7

(2) Economic Reasons for Franchising ..............................

10

(3) Incentive Problems in Franchising and

Mechanisms that Control these Problems .....................

13

(A) Adverse Selection and Franchisee Screening .......

14

(B) Franchisee Free-Riding .........................................

15

(C) Moral Hazard on the Part

of

the Franchisor ..........

19

(D) Franchisor Opportunism ....................................... 20

(4) Franchising Involves the Sharing

oflntangible

Capital ...........................................................................

22

B. Applicable Statutes ........................................................................... 24

1.

Shennan Act ..............................................................................

24

2. Clayton Act ................................................................................

29

3. Robinson-Patman Act ................................................................ 30

4. Federal Trade Commission Act .................................................

31

5.

State Statutes .............................................................................. 32

6.

Specific Industry Legislation .....................................................

33

iii