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Reposted by Marshall Steinbaum

Edo Navot @edonavot.bsky.social · 20/04/2026

Mega-🧵 : Never before analyzed FTC data on franchising shows that * Brands are increasingly squeezing and exploiting franchise operators by - Increasing control over franchise operators - intensifying competition among franchises - increasing the cost of exit through non-competes.

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Are you going to start telling people to learn basic economics?

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Reposted by Marshall Steinbaum

Ulrich Atz @ulrichatz.org · 20/04/2026

One takeaway from the paper is that disclosure is necessary but not sufficient: Franchise Disclosure Documents make these restraints visible, but they do not undo switching costs,hold-up, or post-term noncompetes. The FTC's Franchise Rule emphasizes disclosure over substantive regulation.

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Most importantly, we demonstrate that contra @mattyglesias.bsky.social, it is indeed possible to quantify the intangible aspects of corporate power using new text analysis methods and demonstrate that it has grown over time. /28

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

We don't resolve the debate over whether vertical restraints create or capture value. What we show is that whatever gains they produce, the distribution of surplus has shifted, and the shift has not been compensated. The data are now available to inform that debate. /27

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

These patterns hold across all 10 major industries in our data. Restaurants, personal care, construction, education, accommodation. This is a structural feature of the franchise form, not an industry-specific story. /26

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

The FTC's Franchise Rule mandates disclosure but doesn't regulate substance. The 2026 Xponential Fitness settlement--$17M, FTC's largest franchise redress--suggests disclosure alone may be insufficient when exit costs foreclose market discipline. www.ftc.gov/news-events/... /25

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Over 90% of chains require personal guarantees piercing limited liability. Over 80% extend that to the franchisee's family or business partners. Franchisors obtain control resembling vertical integration w/o the capital costs or employment obligations of the corporate form. /24

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

~40% of chains bind franchisees to NDAs. Non-disparagement clauses are rising. Very few chains recognize an independent franchisee association. The channels through which the balance of the relationship might be contested are narrowing. /23

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Speech restrictions & mandatory arbitration reduce the risk that franchisee dissatisfaction complicates a transaction. Resale price maintenance signals that pricing is a centralized lever. PE acquires chains where control has already been consolidated. /22

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

We explore one explanation for the shift: private equity. Chains that adopt franchisor-favoring provisions become 2-5pp more likely to be acquired by PE within five years. Stripping exclusive territories signals room for rapid expansion to prospective investors. /21

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

75% of surveyed franchisees believe they have an exclusive territory. Nearly all are contractually subject to the franchisor's right to invade it. The "informed choice" mechanism underlying the Franchise Rule does not appear to be producing informed choices. /20

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

"When they sell to private equity it's a crap shoot..." /19

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

"Our primary service offering relies on supplies that are sole sourced from one vendor...the supplies we are mandated to purchase have increased in cost by nearly 200% in the past 3 years." /18

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

"WAY TOO involved in the 'independently owned' franchisee operations" /17

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

"it sucks to own but not own a business" /16

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

We received 65 open-ended responses. Two said the franchisor benefited their business. The other 63 expressed varying degrees of dissatisfaction, for example: [...] /15

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

We surveyed 300+ franchisees across 234 chains. 61% say control has gotten more onerous over time, stable at 60-70% regardless of tenure. /14

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Post-term noncompetes approach 90% prevalence. You get a free choice of brand affiliation once--at the outset, when you know the least. The franchisor's right of first refusal constrains resale. Personal guarantees (90%+) make exit ruinous. /13

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

So franchisees lose autonomy, pay more, don't see faster growth, and don't stop complaining. Why doesn't market discipline correct this? Why don't franchisees choose less restrictive brands? /12

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

The FTC complaints analysis is new in this version: @mikelipsitz.bsky.social joins as coauthor and we introduce the first systematic matching of 72,000+ franchise complaints to contract terms. Complaints broadly track overall FTC complaint trends and do not fall as control rises. /11

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Chain growth doesn't increase with control. And complaint rates to the FTC don't decline. The data are inconsistent with a story in which franchisees are voluntarily trading autonomy for shared gains. /10

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Franchise fees rise with franchisor control. Chains that adopt more restrictive provisions also charge more to enter. Whatever these restraints are doing, they are not generating compensating differentials for franchisees. /9

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

The theoretical literature offers a clear prediction: if restraints are efficient, they grow the pie, and franchisees should be compensated for reduced autonomy through lower fees, faster growth, or better relationship quality. We test all three. /8

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

We reduce the provisions to a single latent index of franchisor control using an item-response model. The entire distribution shifts rightward over 15 years. This holds in balanced panels tracking the same chains over time--it's not driven by compositional change. /7

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Pricing restraints, sourcing mandates, product-mix control, noncompetes, speech restrictions, and data-sharing requirements all rose simultaneously. The movement is in one direction only across every domain we measure: toward greater franchisor control and reduced franchisee autonomy. /6

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

The most striking finding: exclusive territories--the franchisee's protected local market and the traditional basis for the bargain between franchisor and franchisee--fell from a majority of chains to ~20%. The franchisor's right to invade the franchisee's territory is now near-universal. /5

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Franchise Disclosure Documents are mandatory pre-sale disclosures required by the FTC. We coded them for the presence of restraints across six domains: pricing, product offerings, territory, governance, information, and financial obligations. The result is a chain-level panel spanning 16 years. /4

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Whether vertical restraints in franchising create or capture value is one of the central questions in antitrust. Jurisprudence has moved decisively in one direction since the late 1970s--but largely on the basis of theory, not systematic empirical evidence. We provide the data. /3

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

Link to the paper: marshallsteinbaum.org/wp-content/u... #EconSky /2

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Marshall Steinbaum @econmarshall.bsky.social · 20/04/2026

🚨🚨Revised paper 🚨🚨 The Balance of Power in Franchising w/@ulrichatz.org, Blake Eliason, @mikelipsitz.bsky.social, @pnorlander.bsky.social, & @stpinto.bsky.social. We built the 1st comprehensive panel dataset of franchise contract terms: 46,000 documents, 4,500 chains, 20+ provisions, 2009-2024. /1

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Marshall Steinbaum @econmarshall.bsky.social · 05/04/2026

Oh yes. I carry it with me wherever I go.

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Marshall Steinbaum @econmarshall.bsky.social · 05/04/2026

Fantastic piece, completely consistent with my own experience of "progressive" "nonprofits." Solidarity with you & godspeed on your necessary work, hopefully free from the meddling & bullying of Trump's most effect coalition partners: the Executive Directors of outwardly righteous organizations.

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

Because they model exclusive territories and (minimum) RPM as doing the same thing: conferring output market power on retailers in exchange for getting them to cooperate in the maintenance of franchisor market power. However our results show the two as having opposite effects on labor standards. /2

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

The 'local market power' point is a statement about the effect of exclusive territories (though potentially also RPM)--they confer output market power, as argued by Asker and Bar Isaac. However, our findings could be interpreted as in tension with theirs. /1

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

That story says something about the effect of exclusive territories on competition in the output market, but not anything that can be compared to the degree of competition in the labor market, in my opinion. /2

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

I don't think you can conclude from our findings that "competition is fiercer for consumers than workers." Our findings are consistent with exclusive territory-->higher output-->higher employment/lower turnover because franchisees need to staff up so they pay more. /1

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Reposted by Marshall Steinbaum

Anna Stansbury @annastansbury.bsky.social · 24/03/2026

Important findings! Understanding franchising in detail is crucial for understanding many parts of the low wage labor market, and this team keeps producing papers that hugely advance our knowledge

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

This is also a vertical analog to Azar et al. (2023), who find heterogeneous minimum wage effects by horizontal employer concentration. Our dimension of heterogeneity is vertical: how much does the upstream firm control the downstream one? /17

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

The upshot: one source of inter-firm pay inequality is the degree to which employers-of-record are constrained by dominant lead firms. The less autonomy employers have, the worse employers they are — exactly the fissured workplace mechanism identified by David Weil. /16

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

Franchisees with exclusive territories, by contrast, have more local market power and more leverage with the franchisor. They can afford to pay above the floor, so minimum wage increases don't bite as hard. /15

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

Why? We think franchisees with less business autonomy are squeezed: they can't pass through costs to retail prices (because of RPM), so they pay workers less. That puts them closer to the minimum wage floor, making statutory increases more binding. /14

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

Event study results confirm: wages rise more steeply and job postings fall more sharply in RPM-restrained chains after a minimum wage hike. The opposite for chains with exclusive territories. /13

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

For exclusive territories, the pattern reverses: chains that grant franchisees an exclusive territory show a smaller wage response to minimum wage increases (1.8% vs 4.2%) and a smaller reduction in job postings. More franchisee autonomy = less sensitivity to the wage floor. /12

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

Same pattern for job postings: RPM chains reduce hiring by 6.6% after a minimum wage increase vs. 2.9% for non-RPM chains. The point estimates are large but imprecisely estimated due to the aggregated nature of the job ads data. /11

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Marshall Steinbaum @econmarshall.bsky.social · 24/03/2026

The key result: the wage effect of minimum wage increases is MUCH larger for chains using RPM (7.6%) than for chains without it (1.3%). That difference is statistically significant (p = 0.04). Minimum wages are more binding where franchisees have less autonomy. /10

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