Franchising is an important strategic practice in services industries; this hybrid organizational system has proven to be a successful contractual mechanism for business expansion (Marvel, 1995; Winter et al., 2012). In various research streams, scholars have investigated the hybrid nature of franchising arrangements in relation to the operational features of the system (e.g., Brickly and Dark, 1987; Combs and Ketchen, 2003; Hsu and Jang, 2009; Lafontaine, 1992; Koh et al., 2009; Roh, 2002). Researchers have defined a franchising system as an organizational form established through agreements between the owner (i.e., franchisor) of a brand and business model, and many individuals/ groups (i.e., franchisees) who pay a fee to use the franchisor’s brand and model to operate their own businesses. Although many scholars have investigated business outcomes of franchising at the firm level, they have paid limited attention to the association between franchising and the business environment more generally, such as that of an entire industry or a national economy. According to Jacquemin (1987), a firm’s strategy and business environment are closely linked. Specifically, the business environment is always changing due to macro-economic factors as well as firms’ competitive actions/reactions (D’Aveni, 1994). This implies that, as a strategic action, franchising may alter the environmental factors that firms must recognize and manage to ensure business success. To address this gap in the literature, the aim of this study is to explore the impact of franchising on business market conditions. This research draws on two major theoretical perspectives: transaction cost economics (TCE) and the resource/knowledge-based view (RBV/KBV). Transaction cost economics (TCE) (Williamson, 1979) provides the theoretical framework for organizational boundary decisions aimed at minimizing costs associated with specific investments and opportunistic behaviors of partners when completing transactions. Arguably defined as a hybrid structure, a franchise system can help firms (franchisors) achieve efficient market coordination by deriving benefits from the financial investments made by their partners while establishing control over partners’ business operations. Thus, franchisors can gain market power by using relatively little of their own capital (Michael, 2003). Second, from an RBV/KBV perspective (Barney, 1991; Kogut and Zander, 1992), a franchising system can provide franchisors with opportunities to access external resources and knowledge. Since franchisees are efficiently bundled sources of the managerial and informational capital required to ensure franchisors’ business success (Stanworth et al., 2004), franchising can make it easier for firms to obtain competitive advantages in the market. Combining the arguments grounded in these two theoretical perspectives, it can be asserted that franchising increases franchisors’ competitive power and advantages, which can introduce new competitive dynamics into the market. Hence, the competitive condition within an industry can be an important environmental outcome shaped by an individual firm’s engagement in franchising. In the existing literature, scholars have identified three dimensions of competition: the competition structure, changes to the competition structure, and the nature of competition (Dess and Beard, 1984; Sharfman and Dean, 1991). The competition structure is specified as industry concentration and represents the distribution of competitive power among market players (Shepherd, 1972). Changes to the competition structure reflect an unstable distribution of power (Caves and Porter, 1978) (i.e., industry instability). The nature of competition can be characterized as either static or dynamic; these two types of competition depend on firms either depreciating existing assets or producing new strategic assets to outperform rivals (Thomas, 1996). The aim of this research is to investigate how franchising alters these three dimensions of competition – industry concentration, industry instability, and the nature of competition – at the industry level.