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• W901548824 abstract "Good statutes (GCSs) require franchisors to show good cause (i.e., a material breach of the franchise contract) before terminating contractual relations with a franchisee. These have long been debated in franchise law, with some states adopting them, others rejecting them, and proponents of both sides arguing about accompanying federal regulation.Proponents of GCSs argue that they protect small and local franchisees from opportunistic termination by large and national chains, invoking big business vs. local entrepreneur rhetoric and stressing the asymmetric information and inherent unequal bargaining power plaguing most such relations. The classic law and economics approach, however, opposes the adoption of GCSs. This approach relies on a central argument: GCSs disrupt an indispensable control mechanism against franchisee free riding, namely the ability of the franchisor to terminate any franchise contract at will.This Article calls for a rethinking of the classic economic analysis of GCSs, in light of the revolution that review sites-namely websites which allow customers to post reviews about franchisees-have brought to the marketplace. After reviewing the classic analysis and the case for at will termination, we show that online review sites create a novel and effective control mechanism against franchisee free riding. Using hotel franchises as a case-study, we show that even in an industry where most customers are non-repeat travelers, unlikely to return to the same site often enough to constrain free riding, online reviews serve as a substitute for at will termination. More specifically, we argue that there are four interrelated conditions necessary for review sites to serve as effective control mechanisms, and all are met in this case. First, that customers are sufficiently motivated to write reviews (despite not being financially remunerated for doing so). Second, that review sites facilitate analysis of information by including active measures to reduce information overload. Third, that review sites are sufficiently trustworthy. Fourth, that review sites influence consumer purchasing decisions. With at will termination supplanted by online review sites, the case for GCSs as franchisee protection from franchisor opportunism is thus revitalized.IntroductionGood statutes (GCSs), which require franchisors to show good cause before terminating contractual relations with a franchisee, have long been debated in franchise law, with some states adopting them, others rejecting them, and proponents of both sides arguing for (and against) accompanying federal regulation.Proponents of GCSs argue that they protect small and local franchises from opportunistic termination by large and national chains, invoking the inherent unequal access the parties have to relevant information and the asymmetric bargaining power plaguing most such contracts.1 The classic law and economics approach, however, opposes the adoption of GCSs.2 The conventional economic argument is that free riding is rampant in franchise networks, due to the incentive each individual franchisee has to enjoy the chain's reputation, while skimping on the investment necessary to promote the national brand and ensure quality at the local venue.3 An at will contract is argued by legal economists to be an indispensable control mechanism for managing chains and preventing free riding. It allows franchisors to swiftly terminate the contract without having to prove in court that the franchisees neglected their duties, thus keeping the latter under constant threat of losing their business if quality is neglected.4 According to this view, since franchisee investment in quality is multi-faceted and relies mostly on effort and care, providing verifiable proof of free riding at a level sufficient to show good cause in court is often very costly, if not outright impossible.This Article calls for a rethinking of the classic economic analysis of GSCs in light of the revolution that review sites-namely websites that allow customers to post reviews about franchisees-have brought to the marketplace. …" @default.
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• W901548824 date "2014-04-01" @default.
• W901548824 modified "2023-09-27" @default.
• W901548824 title "Revitalizing the Case for Good Cause Statutes: The Role of Review Sites" @default.
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