- Brandnamevalue.Thefranchisemighthaveabrand
name value that enables the franchisee to charge
higher prices and attract more customers than an
otherwisesimilarbusiness.Thus,aninvestormaybe
willingtopayasignificantup-frontfeetoacquirea
McDonald’sfranchise,inordertotakeadvantageof
thebrandnamevalueassociatedwiththecompany.
Thisbrandnamevalueisaugmentedbythefactthat
thefranchisoroftenprovidestheadvertisingforthe
product. - Product/serviceexpertise.Insomecases,afranchise
hasvalue becausethefranchisorprovidesexpertise
on the product or service that is being sold. For
instance,aMcDonald’sfranchiseewillhaveaccessto
thestandardequipmentthatMcDonald’susesaswell
astheproductingredients(thespecialsauceonthe
Big Mac). - Legalmonopolies.Sometimes,afranchisemayhave
valuebecause thefranchisee isgiventheexclusive
righttoprovideaservice.Forinstance,a company
may pay a large fee for the right to operate
concessionstandsinabaseballstadium,knowingthat
theywillfacenocompetitionwithinthestadium.Ina
milder variant of this, multiple franchises are
sometimessoldbutthenumberoffranchisesiskept
limited to ensure that the franchisees earn excess
returns. New York City, for example, sells cab
medallions that are a prerequisite for operating a
yellow cab in the city. The city also has tight
restrictions on non-medallion owners offering the
same service. Consequently, a market where cab
medallions are bought and sold exists.
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