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Policy Study
Study on Franchise Contract and Franchise Market System

December 31, 2018

  • Author LEE. Jinkook
  • Series No. Policy Study 2018-04
  • Language Korean
PDF
Policy Study
Study on Franchise Contract and Franchise Market System

December 31, 2018

PDF
This paper analyzes how franchise contract conditions are influenced by market structure as well as how they affect producer surplus, utilizing the Korean franchisor’s Information Disclosure Data for 2014-2016.

The results reveal that franchise fees tend to increase in line with the increase in the number of direct stores or business period. This implies that it would be reasonable to check whether the franchise fee is excessive compared to the amount of reputation capital rather than the absolute level of franchise fee.

It was also found that the larger the royalty discount in the purchase contract, the higher the initial royalties. Outwardly, although it can seem to be a royalty discount, it can be a practice to induce a raw material purchase contract by initially setting a high royalty rate then lowering it after the purchase contract is signed.

For the effect on producer surplus, the results show that an increase in franchise fees and royalties negatively affect franchisee’s operating profits but positively affect that of the franchisor’s, leading to conflicts over the distribution of the economic value added.

Based on the findings, this paper proposes policy directions that include; reinforcing the contents in the information disclosure book; improving of royalties and raw material contracts and; strengthening the qualification requirements for franchise businesses.
 
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Office of Global Economy
Providing Economic Forecast and Macroeconomic Policy Direction, the Groundwork for a Brighter Future

The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

Main Tasks
  • Economic trend analysis, short- and long-term forecast
  • Policy study on macroeconomic management
  • Basic structural analysis on macroeconomic areas
  • Maintenance of multi-sectoral dynamic macroeconomic model
Department of Macroeconomic Policy
  • LEE. Tae Suk

    Director, Division of Analysis and Evaluation

    82-044-550-4725
  • CHO, Byungkoo On leave

    Director and Vice President, Department of North Korean Economy

    82-044-550-4725
  • LEE, Jongkyu

    Fellow

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  • WEE, Hyeseung Dispatched

    Research Associate

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  • NAM, Jinwook On leave

    Specialist

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  • KIM, Seulki

    Research Associate

    82-044-550-4725
  • CHUN, Eunkyung

    Research Associate

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