ABSTRACT
Chains and franchise operations in service industries often are organized so that individual operators have substantial local control over their activities and pricing, whereas a central administration coordinates advertising, research, and supply. Consider, for example, a quick-service restaurant chain. Here, it is necessary to have many distributed locations for the convenience of customers. Each location is subject to idiosyncratic unique conditions—a competitor across the street, local demographics affecting menu choice, and so on. However, all units share a basic menu of popular items. Therefore, it is reasonable to assume that the information content of the experience of all the units would be useful to individual units in choosing prices and promotions. In a system with many units it is not feasible for the operators to get together and communicate with one another. However, each unit can communicate with the central administration, which can coordinate and summarize information and broadcast useful conclusions back to the units. Of course, the administration is busy and usually is unable or unwilling to process detailed reports from each of the many units.
