AN OVERVIEW - Part 10

Such wagon train leaders were signed up to contracts by the pioneers in the east before they set out into the unknown wilderness. Just as, in modern industry, a given firm may process its product only through a certain number of steps and then turn it over to some middleman to continue its journey to the ultimate consumer, so a particular guide might take the wagon train only a certain distance — perhaps taking a California-bound wagon train as far as the Rocky Mountains, after which some other guide would lead the pioneers through the Rockies, the Sierra Nevada Maintains and into the valleys beyond.

Franchises

Knowledge is shared in both directions when hotels, restaurants and other businesses are franchised. The knowledge offered by the chain that does the franchising is based on its experience with similar businesses in various locations around the country or around the world. The franchise chain is also likely to be more knowledgeable than the individual franchise owner about where and how to advertise and how to deal with suppliers. However, the local franchisee is likely to be more knowledgeable about things that only someone on the scene can know — the local labor market, changes in the surrounding community and of course all the details that have to be monitored on the premises day to day.

Chains and franchises are not synonymous. The first great hamburger chain — the chain that put the hamburger on the map in the 1920s — was the White Castle chain, which owned all of its hundreds of restaurants. Its top management, however, had much local experience before going regional and then national — and they made many visits to their local outlets to keep in touch. But these wholly owned restaurants were different from franchised restaurants owned locally, in whole or in part, and connected with a national franchisor setting general standards and policies, and usually advertising the whole system.

The era of the franchised restaurant chain began with Howard Johnson in the 1930s, and the heyday of franchised hamburger stands began with McDonald's in the 1950s. By and large, franchises have been more successful in these fields. By 1990, more than one-third of all revenues from retail sales of goods and services in the United States went to franchise outlets.

MARKET AND NON-MARKET ACTIONS

The fact that profits are contingent on efficiency in producing what consumers want, at a price that consumers are willing to pay — and that losses are an ever-present threat if a business fails to provide that — explains much of the economic prosperity found in economies that operate under free market competition.

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