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Question: Franchise arrangements involve a number of highly specific investments on the parts of both the parent company (e.g., McDonald's or Hilton Hotels) and the franchisee (the owner of a particular McDonald's or Hilton). Identify some of these investments. Then explain how each of the parties might act opportunistically to gain from the other's specific investments. Does it surprise you that franchise contracts are usually very long and complex, and that they are the subject of much litigation?

Microeconomics, Economics

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