Spatial choice, performance, and competition among interdependent organizations in coupled spatial-economic systems : insight into transboundary spatial externality in US franchise industry
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In this study, we address three broad research questions. First, we ask what is the effect of transboundary franchise externality on spatial choice of franchise establishments? Second, what is the effect of transboundary franchise externality on establishment performance? Finally, we answer the question what is the effect of transboundary franchise externality on multimarket competition and the implications of multimarket competition for economic performance of firms? We address each of these three overarching research questions separately in each chapter of this book. Franchising relationships account for more than half of economic activities in the lodging industry in the United States. The growth of franchising organizations in the United States has led to increasing interdependencies among establishments. These interdependencies create transboundary spatial externalities. However, existing franchise literature often assumes that economic agents prioritize short-term profits while overlooking franchise spillovers. In this study, we examine the impact of transboundary franchise externalities on establishment location choices, economic performance, and multimarket competition. Our analysis utilizes restricted-use, national longitudinal data from the US Census Bureau on 41,000 franchise establishments spanning 2007--2017. We develop a capital mobility spatial-econometric framework to estimate transboundary franchise externalities and simulate the effects using an endogenous switching regression model. Transboundary franchise externalities significantly and positively influence establishment location decisions, economic performance, and multimarket competition. Additionally, these externalities lead to the formation of geographic clusters of franchise establishments. By accounting for transboundary franchise externalities, franchising negatively correlates with economic performance. These results provide insights into the paradox of location, performance, and competition within the new economic geography literature and agency theory. They suggest that franchising may not be an optimal solution for addressing agency problems. Our findings have major policy implications for franchise location strategy, optimizing economic performance, and governance regulations.
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Ph. D.