The problem with Tim Hortons was it was bought by a conglomerate named Restaurant Brands which is run by a pair of investment firms, principally a Brazilian company called 3G Capital. They're pretty cutthroat, and they quickly realized the franchise agreements let them screw people over easily. So that's what they've been doing. Since they get a percentage of the gross, right off the top, it doesn't matter to them what profits the franchises get or don't get. So they ordered the franchises not to raise prices. They care about sales, you see, not profits, because their money comes from the gross, not the net.
Franchise fees on gross sales is pretty standard, otherwise think of all the creative ways franchisees can reduce their net income and not pay royalty fees. Often it's a percentage, but sometimes a flat fee so I don't know what you mean that they 'caught on that they could screw people over'.
Also, there is the cost/benefit to keep in mind. A small price hike may lose a bit of customers but given the clientele, does it necessarily translate to less royalty given that as % of sales, the higher the gross sales, the higher their own royalties.
They may be cut-throat but not for the reasons you listed.
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