“When Less May Be More: An Asymmetric View of Franchise Contract Scope” by Dr. Fabrice Lumineau
Dr. Fabrice Lumineau
Associate Professor of Strategic Management
Krannert School of Management
We extend the management literature on contractual governance with an asymmetric view of contract design that highlights the strategic implications of selectively excluding specific contractual rights from contracts. Specifically, we consider the choice of contract scope as an alternative way to address exchange hazards. We suggest that when facing exchange hazards, a firm may fortify its own protection not only by bolstering its own contract scope but also by narrowing the contract scope of its partner. The results from a study of disclosed documents and contracts of 136 franchise systems in the U.S. largely support our arguments.