Odd Lots · Friday, July 24, 2026
Brian Calachi, Chief Economist at the Open Markets Institute, argues that the franchise model, particularly in fast food, was designed to circumvent antitrust and labor laws, allowing franchisors to exert extensive control over independent operators without bearing the associated responsibilities. He explains that this structure, originating in the post-war era, treats franchisees as legally separate entities to avoid labor protections while still dictating operational details.
“So you know, you've got a brand owner on McDonald's, let's say, and they license, you know, ostensibly we can get into how independent they really are. By an independent business owner to run a McDonald's restaurant and use the McDonald's trademark and in exchange the franchise e both want The operator called the franchise e, kicks a percentage of their sales and royalties usually between six or you know, twenty percent, and so McDonald's takes that revenue stream and in return also the franchise e, this is the key sticking point, agrees to follow all of their instructions and it is quite minute I mean everything from the you know, in many cases even the prices, hours of operation, product mix, and even things like you know, how long does your employee have you know, deserve as a customer to drive through? What words do they use to greet the customer. There's very little left to discretion of the franchise. They're basically a middle manager for a large corporation, but with a little bit more risk and a little more skin in the game.”
“But the other reason why franchising was so appealing to these franchisors is that the fact that they were a separate business, they were not employees of the chain, meant that they were covered by overtime or minimum wage or if you know, the McDonald's workers wanted to you know, join a union or something like that, they weren't able to do. So they had no rights against McDonald's. All of their rights are only against this franchisee who really doesn't have the money. The money is all, you know, sort of coming to the top, so that access I legal barrier to exclude workers from those rents.”
“The problem is not that there's innovation, that there's control. That's what a firm is, That's what a corporation is is. You know, markets shouldn't do everything. Sometimes having a little central planner, you know, a mini central planner, you know, coordinating activity is a great thing for you know, getting more efficient and innovating. So we should have that. The problem is then you can't avoid the obligations and liabilities and risks that go with owning assets and employeing workers.”