The purpose of this paper is to explore how scale and scope of operations, firm age, and the choice to join a franchise formula influences brokerage firms' efficiency.
Four‐year data of 1,282 Dutch real estate brokerage firms is used to compute a relative efficiency measure for all firms. Consecutively, variation in this efficiency measure is explained from the firm and market characteristics.
The results show that scale and scope have a non‐linear, U‐shaped, relationship with efficiency. A reversed U‐shaped relationship is found between age and efficiency. Finally, being a member of a franchise does not necessarily lead to improved efficiency, but it depends on the franchise formula terms used.
Based on these results, managers of real estate brokerage firms are able to reconsider their own organizational design choices.
Compared to prior studies, this study uses data from multiple years. Further, the analysis also incorporates non‐linear effects of scale, scope and age on efficiency. Finally, prior research has only compared efficiency of franchise versus independent firms. This study shows that benefits of a franchise depend on the contract terms.
