Summaries of Great Academic Articles on Law

Author Victor P. Goldberg, Columbia Law School Document Type Article Publication Date 1979   SUMMARY OF HOW THE ARTICLE’S ECONOMIC THOUGHTS IMPACT ON FRANCHISING Insights and Discussions on Franchising, Franchisees, and Franchisors: Roles, Relationships, and Legal/Economic Implications Definitions and Nature of the Franchise Relationship Franchising encompasses various retail arrangements, including “business format franchising,” where a trademarked product, service, or method is licensed to a franchisee (e.g., fast food, muffler shops, convenience stores), and “traditional franchising,” which involves specialized retail services (e.g., automobile dealerships, service stations) where dealers often specialize in a single brand’s products, making the franchisee’s business identity heavily reliant on the franchisor relationship. Conversely, “franchise” agreements can also be extremely casual, resembling routine retailer-manufacturer transactions, such that the label “franchise agreement” may be attached to loose or minor arrangements. The franchise relationship is best understood as a long-term “relational exchange,” not as a discrete, one-off transaction; it involves parties entering an ongoing arrangement, partially insulated from market forces, with behavior within the relationship (not just market outcomes) being a key concern. Roles and Interests of Franchisors and Franchisees The franchisor typically designs the franchise agreement and presents it to franchisees, often on a take-it-or-leave-it basis. While franchisee interests may be considered to some extent, the franchisee plays a relatively passive role in the formation and structuring process. Franchisees invest in inventories, signage, promotion, and otherwise become closely tied to the franchisor’s business, sometimes making relationship-specific investments that lack value outside the franchise arrangement. Franchisors provide initial and ongoing training, […]

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