Franchising has become a very visible part of the economic landscape in the United States. Its role in distributing products to customers in the rest of the world has also grown considerably over the last several decades. In this book, we describe what franchising is and how it works. In most situations, franchising works very well for franchisors, franchisees, and consumers alike, which is why it has grown to the extent that it has. Because it works well most of the time, we expect that franchising will continue to flourish in the world economy. At the same time, however, we know from economic principles that franchise relationships are by their very nature fraught with many difficulties arising essentially from differences between the needs and goals of the franchisors and those of the franchisees. Economists and management researchers have made significant progress in the last twenty or so years toward increasing our understanding of the sources of these problems. We highlight much of their work in this book.

We had many goals in writing this book. First, from a managerial perspective, we hope that an improved understanding of the basic sources of friction in franchise relationships will allow franchisors and franchisees alike to develop better ways of dealing with each other's concerns, either through the franchise contract itself or through other means of their choosing.