How would a parent company competing against franchisees affect the franchisees and the prospect of future franchise expansion?
A company has developed an extensive network of franchises. Recently, the franchisees have complained about the parent company competing against them through direct catelog sales and Internet mall sales to boost company sales.
Competition of any sort is generally not good for a firm, and this kind of competition would be the worst of all. In this case, you would not have two firms competing to sell similar products. Instead, you would have the franchise and the parent firm competing to sell the exact same product. The parent firm would presumably have an advantage due to its ability to use the internet. This would draw customers away from the local franchisees and hurt their profitability.
Of course, this might work against the parent company as it tries to sell new franchises. Potential franchisees would be less eager to buy a franchise from a firm that would then turn around and compete against them. The parent firm will need to balance its desire for more sales via the internet against its desire to be able to sell franchises.