OPTIMAL FRANCHISING IN OLIGOPOLISTIC MARKETS WITH UNCERTAIN DEMAND

If oligopolistic firms can observe and enforce retail prices upon their retailers, they may select to do so, if retailers have private information about an uncertain state of the demand. Delegating the pricing decision to the retailer, has both an advantageous effect of alleviating price competition among firms, and a disadvantageous effect of transferring surplus from the firm to its agent. The disadvantageous effect may be dominant, if the products produced by the firms are sufficiently differentiated and/or the degree of prior uncertainty about the demand is sufficiently high. © 1991.