Transaction Costs in Franchising and Licensing Contracts

The problems of influence of transaction costs on the structure of franchising and licensing contracts are studied. It is demonstrated that different institutions of contract governance influence both the contract form and the development of firms participating in franchising and licensing interactions. New franchising networks are successfully maintained following the dominant institutional logic of their formative stage. Furthermore, special contract clauses including property rights distribution help franchisors and franchisees overcome the problem of suboptimal action in principal-agent relations and prevent opportunistic attempts to attain quasi-rents. Finally, different levels of transaction costs of property rights' specification and enforcement are responsible for the difference of institutional structures governing licensing contracts.