The Most-Favoured-Customer Pricing Policy and Competitive Advantage

Iñaki Aguirre

Bulletin of Economic Research, 2000, vol. 52, issue 3, 215-23

Abstract: The paper investigates the effects on competition of the unilateral most-favoured-customer pricing policy. A model is considered in which a multimarket incumbent firm faces a threat of entry in one of its two markets. It is shown that contemporaneous most-favoured-customer clauses may change competition to the advantage of the incumbent both under strategic substitutes and strategic complements. If the duopolistic market is strong, the most-favoured-customer policy makes the incumbent "tough" and may be used for entry deterrence purposes. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 2000
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