Abstract
If franchisor opens a new store near an existing franchised store whose stores' brand are
as same as the new one, it would inevitably leads to an extent of cannibalization conflicts
between both sides who argue for their individual maximized benefits, so the relationship
between franchisors and franchisees is very subtle. The conflict in the benefit distribution
between franchisor and franchisee is not only cooperation but also a game. If the both sides
can get greater interests than nothing to do on the new outlets development, both sides could
achieve win-win situation, otherwise any side of them would quit the cooperation.
The study is striving to research the insights by representing the game process between
franchisor and franchisee. It is found that even though both sides can reach at Nash
equilibrium point in one-shot game, the conflicts of no exclusive territory protection would
harm and constrain the committed relationship in the franchising system. In order to develop
franchise business, franchisors shall take a long term strategy into consideration when the
management cost raises higher and higher. The purpose of this study is to provide a reference
for franchisor's business decision to build a long-run healthy and sustainable development of
the franchise system.
Key words: franchising; benefit; game; exclusive territory; new store cannibalization
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