Full Answer
Why do franchisees call each other?
What are the main causes of competition law problems?
Why was ACM fined?
Why was the preliminary relief judge found that this non-compete clause was consistent with the cartel prohibition?
Is a marketplace ban a hard-core restriction?
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About this website
What are the limitations of franchising?
There are 5 main disadvantages to buying a franchise:1 - Costs and Fees. ... 2 – Lack of Independence. ... 3 – Guilt by Association. ... 4 – Limited Growth Potential. ... 5 – Restrictive franchise agreements.
What is the purpose of a public franchise?
A public franchise is a term used in economics to denote a firm that is appointed by the public authority as the restrictive supplier of a public good or service. Accordingly, the public franchise accomplishes monopoly power as it is the sole provider of the good or service.
Can a public franchise create a monopoly?
In other words, a legal monopoly is a firm that receives a government mandate to operate as a monopoly. Legal monopolies can be established through: A public franchise.
How does the government give a monopoly power using franchise?
A franchised monopoly refers to a company, or individual, that is sheltered from competition by virtue of an exclusive license or patent granted by the government, as the government believes it to be a beneficial component of the economy.
What are the advantage and disadvantage of franchising?
franchising-tableAdvantagesDisadvantagesFranchisees may be more talented at growing the business and turning a profit than employees would beFranchisors earn royalties from sales. Franchisees earn money from profits. Achieving growth in both isn't always possible, potentially causing conflict6 more rows•Jan 30, 2015
What are the benefits of franchising?
There are several advantages of franchising for the franchisee, including:Business assistance. One of the benefits of franchising for the franchisee is the business assistance they receive from the franchisor. ... Brand recognition. ... Lower failure rate. ... Buying power. ... Profits. ... Lower risk. ... Built-in customer base. ... Be your own boss.
Why do governments create monopoly?
In many cases, government-created monopolies are intended to result in economies of scale that benefit consumers by keeping costs down. Utility companies that provide water, natural gas, or electricity are all examples of entities designed to benefit from economies of scale.
Which method is used by the government to regulate monopoly?
The government can regulate monopolies through: Price capping – limiting price increases. Regulation of mergers. Breaking up monopolies.
Is creating a monopoly bad public policy?
Monopolies are generally considered to be bad for consumers and the economy. When markets are dominated by a small number of big players, there's a danger that these players can abuse their power to increase prices to customers.
How does government stop monopoly?
removing or lowering barriers to entry through antitrust laws so that other firms can enter the market to compete; regulating the prices that the monopoly can charge; operating the monopoly as a public enterprise.
What factors are likely to limit monopoly power within markets?
7 Limits to the Power of a MonopolistLimit # 1. Potential competition:Limit # 2. Substitutes:Limit # 3. Public Opinion:Limit # 4. Legislation:Limit # 5. Consumers' Surplus:Limit # 6. Countervailing Power:Limit #7. Price elasticity of Demand:
What is an example of government monopoly?
Two examples of government-sanctioned monopolies in the United States are the American Telephone and Telegraph Corporation (AT&T) and the United States Postal Service. Prior to its mandated break up into six subsidiary corporations in 1982, AT&T was the sole supplier of U.S. telecommunications.
Can a franchise go public?
Going into a public exchange is not something a franchise needs to undertake, but can benefit from if there is a strong track record and prospects for growth.
What are the 4 types of franchising?
The four types of franchise business you can invest inJob or operator franchise. These owner operator franchises are usually home based, which keeps overheads down to a minimum. ... Management franchise. ... Retail and fast food franchises. ... Investment franchise.
What is an example of a franchise business?
Examples of well-known franchise business models include McDonald's (NYSE: MCD), Subway, United Parcel Service (NYSE: UPS), and H&R Block (NYSE: HRB).
What are the two types of franchising?
There are two main types of franchising, known as Product Distribution Franchising (Traditional Franchising) and Business Format Franchising, which are conducted under a variety of franchise relationships.
Franchise and competition: case law and developments
Franchise agreements play a special role in competition law. In an earlier blog we paid attention to the main competition law principles of franchise agreements. There recently have been various Dutch and European developments in this area. The current state of affairs in the field of franchise and competition is addressed in this blog.
Competition Laws in Franchising - Lexology
A key element of a franchise agreement is the licensing of certain intellectual property rights such as trademarks, designs and know-how for the use…
COMPETITION POLICY AND VERTICAL RESTRAINTS: FRANCHISING AGREEMENTS - OECD
10 Economics of franchising and vertical restraints The economic effects of franchise agreements are grouped into two general categories: effects on vertical co-ordination and on market competition.
Issues in Competition Law and Franchise Agreements in Australia
willing, and that once promises are made they must be kept. The Competition and Consumer Act 2010 (CCA) (the ‘Act’) and the Franchising Code of Conduct (the ‘Code’) provides for Australian franchises, and outlines the rights and obligations which franchisors and franchisees have under the legislation.
Franchising in EU Competition Law - Lexology
A key element of a franchise agreement is the licensing of certain intellectual property rights such as trademarks, designs and know-how for the use and distribution of goods or services...
How does a public franchise affect the market?
The effect of a public franchise on the market is variable. Because a public franchise is a kind of monopoly, it automatically makes the market less efficient. Because such a firm has no competition, its prices no longer reflect supply and demand.
What is a public franchise?
A public franchise is a sort of state-sponsored monopoly. Public franchises can be in areas such as drinking water supply, or perhaps most prominently, in the U.S. Postal Service.
Why are franchises put in place?
Purpose. Public franchises are put in place to strictly regulate a certain market. This could possibly help consumers by keeping prices low and possibly subsidizing costs, or it could not. Ideally, the government is ensuring the public gets the best provider for the best price.
What is franchise agreement?
A key element of a franchise agreement is the licensing of certain intellectual property rights such as trademarks, designs and know-how for the use and distribution of goods or services. Franchise agreements usually contain a combination of different vertical restraints with regard to the products being distributed, such as exclusivity, quality requirement, assortment, customer group and certain internet sales restrictions. Often a franchisor also has specific views on retail pricing and discount strategy, or wishes to receive and exchange sales and customer data relating to sales transactions to improve marketing and sales strategies for the franchise network. Further, is it common that franchisees have to comply with a non-compete clause during the term of the agreement, and sometimes post-termination for a certain period of time and geographic area. Contractual restrictions like these may create competition concerns, particularly in the European Union.
What is exclusive distribution?
Under European competition law, it is permissible to allocate a certain territory or consumer group exclusively to a franchisee. This practice is called ‘exclusive distribution’. In the case of exclusive distribution, franchisees may be prohibited to actively sell into the exclusive territory or to an exclusive customer group that is allocated to another franchisee or that the franchisor reserved to itself. Passive selling, including online sales, may not be restricted. These arrangements are exempted by the Block Exemption Regulation if the market share of both franchisor and franchisee do not exceed 30 per cent of the relevant market and the agreement does not contain any hard-core restrictions.
What is cartel prohibition?
This article states, in short, that agreements that may affect trade between member states, and have as their object or effect the prevention, restriction or distortion of competition within the internal market, are prohibited. Article 101 (2) TFEU sets forth that agreements that are covered by article 101 (1) TFEU are void and unenforceable. This is different if the agreement satisfies the criteria of article 101 (3) TFEU. This article states that article 101 (1) TFEU may be declared inapplicable in the event the following four cumulative criteria are met; the agreement must:
Can a franchisor ban online sales?
Under European competition law it is not allowed for a franchisor to impose on its franchisees an absolute ban on online sales. Therefore, a franchisor cannot directly or indirectly forbid its franchisees to sell through their own website. This includes applying criteria that indirectly force the retailer to make the sale physically, such as the requirement that Pierre Fabre imposed on its distributors to sell its products in the physical presence of a person with a degree in pharmacy. 29
Is vertical price fixing a hard-core restriction?
Vertical price-fixing is considered a hard-core restriction under competition law. A franchisee must always be free to set its own resale price. A franchisor may not oblige or incentivise its franchisees to sell goods for a certain minimum or fixed price. However, recommended resale prices and maximum resale prices are permitted (both as long as they do not, in practice, amount to a fixed or minimum price level).
Is a franchise agreement subject to competition law?
Based on the above we can conclude that franchise agreements in Europe are, regardless of the choice of law and forum, subject to EU competition law. A franchisor is not allowed to implement practices that are not permitted under EU competition law, such as vertical or horizontal price-fixing, sharing markets, prohibiting passive sales and imposing a direct or indirect ban on internet sales. However, franchise takes a special place within EU competition law. Specific contractual restrictions on the franchisee – which are necessary to protect know-how and goodwill, and to maintain the common identity of the franchise network – fall outside the European cartel prohibition. Based on the Vertical Block Exemption, article 101 (1) TFEU does not apply to vertical restraints (such as applying territory restrictions or certain restrictions on resale in selective distribution based on qualitative and quantitative criteria) in a franchise agreement if the market share of both the franchisor and the franchisee do not exceed 30 per cent of the relevant market and the agreement does not contain hard-core restrictions. In the event the agreement does not fall within the Vertical Block Exemption it must be assessed on an individual basis whether the system constitutes an infringement of competition law pursuant to article 101 (1) TFEU and, if so, whether the individual exemption pursuant to article 101 (3) TFEU applies or not. In most jurisdictions, the burden in civil litigations is set high.
How to determine if a franchise agreement violates competition law?
To determine whether a franchise agreement violates competition law, the agreement should be viewed (among others) in the light of the so-called Pronuptia ruling of the European Court of Justice. This ruling stated that franchise agreements are not contrary to competition law if certain stipulations to protect the franchisor’s knowhow, and/or the identity and reputation of the trademark are necessary. These rules have been detailed further in the Block Exemption Regulation of the European Commission for franchisors.
What is a franchise agreement?
The agreements between a franchisor and a franchisee are recorded in a franchise agreement. Some of these agreement are often on the intersection of competition law. In a recent legal action, franchisees invoked the fact that the franchise agreement is contrary to competition law, after their franchisor demanded compliance with the franchise agreement. Contract lawyer Marco Guit explains which aspects all franchisors should aware of.
Why is free competition important in the Dutch economy?
Free competition is essential for the Dutch economy. The right competition stimulates the economy and ensures a competitive and fair market. Franchisors such as the HEMA and Albert Heijn give franchisees the opportunity to operate their franchise concept. Of course the franchisor wants his franchisees to comply with (for example) certain quality and hygiene requirements. The franchisor often overcomes this by imposing a detailed purchase obligation on the franchisee. In this way the franchisor knows that the products in the stores comply with certain quality standards.
What is the purchase obligation of a franchise agreement?
It can be tempting for a franchisor to arrange everything in a franchise agreement. It is therefore quite common that a purchase obligation of 90% or more is included by the franchisor. However, it is crucial to always keep an eye on the competition regulations. If a franchise agreement is annulled based on competition law, this has far-reaching consequences.
Is a purchase obligation of 90% too high?
This case shall therefore be assessed by a court in proceedings on the merits. This court shall probably first determine whether the franchisor owns more than 30% of the market. If this is the case, the franchise agreement shall be annulled based on the competition law. In that case the included purchase obligation of 90% is simply too high .
What is franchise limited liability?
Franchise limited or unlimited liability are issues that could arise for a franchise owner. When any person forms a business, he or she must keep in mind the type of business structure that is being established to be able to identify if the law protects that owner from liability over the company’s outstanding debts.
What is franchise ownership?
A franchise is a type of ownership that allows the franchisee to borrow the franchisor’s business model and brand for a period of time during the franchise operations. Such franchises are set up through a licensing agreement with the franchisor.
How does a franchisor help a franchisee?
The franchisor helps the franchisee in the following ways: 1.Finds the premise for the franchisee. 2.Assists in constructing and/or refurbishing the premises. 3.Helps obtain planning approvals, business permits, etc. 4.Helps with purchasing of inventory. 5.Provides training on how to operate the franchise.
What does a franchisor do?
The franchisor also provides managerial advice and guidance to the owner and manager in how to own and operate a business, and overcome any issues that they might face with customers or employees.
How to purchase a franchise?
Once you are ready to purchase a franchise, you will need to submit an application and show proof that you can meet the financial responsibilities of owning a franchise. If accepted, you will likely need to meet with a representative of the franchisor to discuss your goals. This meeting is essentially an interview wherein you can ask any questions you might have pertaining to the franchise, while the representative can evaluate your qualifications and understanding of what it takes to manage a franchise.
Does a franchisee own the franchise?
While the franchisee owns the franchise, the franchisor still has a lot of control over how the franchise will be maintained. Therefore, all franchisees operating under the franchisor will need to abide by the requirements set forth by the franchisor. Furthermore, the franchisee has little control over which suppliers they can purchase from. Even if the franchisee can purchase supplies at a cheaper cost elsewhere, they might be required to spend more money if the supplier they want to use isn’t on the list. What’s more, the franchisor can, at any time, modify the operating agreement, requiring that the franchisee significantly alter their way of operating, even if that means spending more money. If the franchisee eventually wants to sell the franchise, the franchisor must approve the sale, along with the buyer.
Is Wendy's a franchise?
Generally, franchises are quite popular, as a lot of restaurants you see today are in fact franchises. Some examples of franchises include fast food restaurants, such as Burger King, McDonalds, Dairy Queen, Wendy’s, and others. Owning a franchise allows you to own a well-known brand, which will help you quickly overcome any issues that most owners have running their own business, particularly, if it’s a brand-new business that isn’t already well established and known by the public.
What does a comma grant to a firm?
grant a patent to a firm comma giving it the exclusive right to produce a product.
Is consumer surplus maximized?
the sum of consumer surplus and producer surplus is maximized.
Why do franchisees call each other?
They therefore called each other to account regarding compliance with their competition restricting obligations.
What are the main causes of competition law problems?
The report showed that online sales and advertising restrictions, restrictions on online platforms and geo-blocking are the main causes of competition law problems.
Why was ACM fined?
In 2011, ACM fined four industrial laundries, on the grounds that they had breached the cartel prohibition by working together, according to ACM: the franchisees were able to influence the admission of new members and the allocation of districts.
Why was the preliminary relief judge found that this non-compete clause was consistent with the cartel prohibition?
The preliminary relief judge found that this non-compete clause was consistent with the cartel prohibition because the claimant had furnished insufficient specific and relevant facts on the basis of which the judge could assess whether competition was appreciably restricted.
Is a marketplace ban a hard-core restriction?
All in all, the ECJ found in this judgment that a marketplace ban is not a hard-core restriction. In our opinion the scope of the Coty judgment (1) is not restricted to luxury products alone and (2) is not restricted to selective distribution.
