Percentage of the franchisee revenue distort

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We noted that royalty payments based on a percentage of the franchisee's revenue distort the franchised firm's incentives; driving up prices and reducing the number of units sold. Ignoring the effects of royalty payments on the franchisor's effort and incentives, explain how the franchisor sets the royalty rate that maximizes the franchisor's profit.

Reference no: EM133064184

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