Purpose - Although Australian franchising sector regulation promotes system disclosure and provides for mandatory conflict mediation, there is some concern that inequities exist within the conflict management process. From 2006 to 2008 no less than four government inquiries into franchising took place in Australia in an attempt to resolve problems occurring in the sector. A major issue was that of the perceived imbalance of power in the franchisor-franchisee relationship, which often results in conflict between the two parties. The purpose of this paper is to extend the conflict literature in dyadic exchange relationships through investigating the causes of conflict from the franchisor and franchisee perspectives. Design/methodology/approach - Exploratory research is undertaken to identify the major causes of franchising conflict. Face-to-face interviews are conducted with 24 franchising experts, such as lawyers and mediators, to draw upon their considerable experience in the sector. Findings - The key findings suggest that a lack of due diligence is associated with the formation of unrealistic expectations which increases the potential for future relational conflict. Although franchising experience impacts upon operational approaches and conflict, the role played by third parties and market conditions both appear to exacerbate dissatisfaction in franchise systems. Research limitations/implications - This research is exploratory and therefore the findings are tentative. The preliminary conceptual models will be tested in a large quantitative survey of key franchising stakeholders in the near future. Originality/value - With the Australian franchising sector presently under intense scrutiny by regulators this research is timely and important. It is expected that the findings will provide government and industry representatives with a more balanced understanding of the causes of franchising conflict so that preventative action may be taken.