Franchising cooperation through chance cross-constrained games

This paper explores the role of franchising arrangements in the context of game theory. We assume a single franchisor and a single franchisee channel and address the impact of fixed lump-sum fees, royalties, wholesale price, and retail price on the franchise contracts. We start with the chance cross-constrained non-cooperative situation where the franchisor, as the leader, first specifies his/her strategies. The franchisee, as the follower, then decides on his/her decision. We than relax the assumption of franchisee's inability to influence the franchisor's decisions and discuss cooperative situation between the franchisor and the franchisee. Nash's bargaining model is utilized to select the best Pareto-efficient payment scheme for the franchisor and the franchisee to achieve their cooperation.