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.

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

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.

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

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

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

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

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

~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

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

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

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

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

"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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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