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Log In / Register | Dec 20, 2014

Burger King Pushes Industry Practices, Seeks to Force Franchises Into Mandatory Pricing

Burger King continues to push the envelope when it comes to requiring franchisees to accept their burger prices, or else. This time it wants franchisees to sell the double cheeseburger for no more than a dollar, a price that would lose money for franchisees. In response, the association representing Burger King’s franchisees has filed a lawsuit. They say franchise agreements give Burger King no such authority.

Burger King's franchisees say they usually get the chance to sign off on price changes, and that they've twice rejected a $1 double cheeseburger. Burger King confirms that it previously didn't dictate prices on individual items, though it did require a $1 maximum price on Value Menu items.

The company won a separate case in 2008 requiring franchisees to offer the Value Menu, which is core to its efforts to attract price-conscious consumers. – Wall Street Journal

McDonald’s franchisees squirmed when the Golden Arches introduced a $1 double cheeseburger that cost the owner-operators more. The franchisor listened and took out one of the two slices of cheese, cutting the cost.

It used to be that franchisers weren't allowed to impose maximum prices, says Francine Lafontaine, who teaches the economics of franchising at the University of Michigan's Stephen M. Ross School of Business. But a 1997 Supreme Court case involving a Chicago service station dealer and his gasoline wholesaler opened the door for the practice.

… If Burger King is successful in mandating the $1 cheeseburger, other franchises might start rewriting franchising agreements to include specific prices, although companies would have to take various state antitrust laws into consideration before doing so, Ms. Lafontaine says.

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