Rico owns a Burger King franchise. Over the years, he has become concerned that there may be too many Burger King restaurants in his area. What shortcoming of franchising does this explain?

(A) profit sharing with the franchiser
(B) limited product line
(C) restrictions on purchasing
(D) possible market saturation
(E) less freedom in business decisions

The correct answer is letter "D": possible market saturation.

Explanation:

Franchising businesses are corporations in which the franchisee has access to a franchisor's proprietary information, processes and trademarks. In exchange for a royalty fee, the franchisee buys the right to sell the product or service under the established brand name.

The disadvantage of franchises is that the main company could franchise its brand name as many times as the company decides. As a result, some markets could face the saturation of the same store if there was not a proper demographic study in providing the franchise.