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.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review and Differentiation of This Study

Chapter 3 Construction of Franchise Disclosure Microdata
　Section 1 Basic Database Construction
　Section 2 Additional Collection of Contract Condition Variables
　Section 3 Assignment of Korean Standard Industry Classification (KSIC) Codes

Chapter 4 Market Structure of Franchise Businesses
　Section 1 Number of Brands and Trademarks
　Section 2 Number of Franchise and Directly Managed Stores
　Section 3 Franchise Store Sales Revenue
　Section 4 Status of Franchise Headquarters Without Directly Managed Stores

Chapter 5 Franchise Contract Conditions
　Section 1 Initial Start-up Costs for Franchisees
　Section 2 Types and Levels of Royalties
　Section 3 Types and Scope of Exclusive Business Areas

Chapter 6 Impact of Market Structure on Contract Conditions
　Section 1 Variables and Estimation Model
　Section 2 Estimation Results of Franchise Fee Model
　Section 3 Estimation Results of Royalty Model

Chapter 7 Impact of Contract Conditions on Franchisee and Franchisor Performance
　Section 1 Data Description
　Section 2 Impact of Contract Conditions on Franchisee Performance
　Section 3 Impact of Contract Conditions on Franchisor Performance

Chapter 8 Conclusion and Policy Recommendations
　Section 1 Summary of Findings
　Section 2 Policy Recommendations

References
Appendix
ABSTRACT