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This study provides a new explanation of the ownership structure of franchise firms by highlighting a trade-off between adaptation and control under increasing uncertainty. Franchise chains are formed to reduce transaction costs by combining franchisee outlets as an adaptation mechanism and company-owned outlets as a control mechanism. We argue that under low to moderate uncertainty, franchisors prioritize local responsiveness to profit opportunities by operating a lower proportion ofdoi:10.1080/13571516.2020.1718460 fatcat:xbkny7hczfer7fsnq7szsehxw4