The rapid growth in franchising during the last three decades can be explained in large part by the
mutual benefits the franchising partners receive. The franchiser (parent company) increases sales
via an ever-expanding network of franchisees. The parent collects a fixed percentage of the rev-
enue each franchise earns (as high as 15 to 20 percent, depending on the contract terms). The
individual franchisee benefits from the acquired know-how of the parent, from the parent’s adver-
tising and promotional support, and from the ability to sell a well-established product or service.
Nonetheless, economic conflicts frequently arise between the parent and an individual franchisee.
Disputes even occur in the loftiest of franchising realms: the fast-food industry. In the 1990s, there
were ongoing conflicts between franchise operators and parent management of McDonald’s and
Burger King.
These conflicts were centered on a number of recurring issues. First, the parent insisted on
periodic remodeling of the premises; the franchisee resisted. Second, the franchisee favored rais-
ing prices on best-selling items; the parent opposed the change and wanted to expand promotional
discounts. Third, the parent sought longer store hours and multiple express lines to cut down on
lunchtime congestion; many franchisees resisted both moves.27
CHAPTER 2 Optimal Decisions Using Marginal Analysis
CHAPTER 2 Optimal Decisions Using Marginal Analysis
Government and business leaders should pursue the path to new programs and
policies the way a climber ascends a formidable mountain or the way a soldier
makes his way through a mine field: with small and very careful steps.
ANONYMOUSConflict in Fast-Food
Franchising^1(^1) We begin this and the remaining chapters by presenting a managerial decision. Your first job
is to familiarize yourself with the manager’s problem. As you read the chapter, think about how
the principles presented could be applied to this decision. At the chapter’s conclusion, we
revisit the problem and discuss possible solutions.
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