Price Control In Franchised Chains: The Case Of McDonald's Dollar Menu

We analyze price patterns at franchised and corporate-owned McDonald's outlets in 1999 and 2006 and find that prices at franchised outlets were higher than those at corporate outlets. The price difference between franchised and corporate outlets decreased between 1999 and 2006 but only for items with close substitutes in the Dollar Menu, which was introduced in 2002. We also find that the price difference between franchised and corporate outlets was higher among outlets located near highways than among non-highway locations. After the Dollar Menu was introduced, this highway - non-highway difference diminished. Our findings suggest that the Dollar Menu improved McDonald's corporation's control over franchisees' prices.