Most-favored customer clauses with differentiated goods and tacit collusion

Chun-Chieh Wang ()
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Chun-Chieh Wang: National Sun Yat-Sen University

Economics Bulletin, 2022, vol. 42, issue 4, 1755 - 1766

Abstract: The most-favored-customer (MFC) clauses are widely used by franchised retailers as well as the low-price-guarantee (LPG) clauses. Many literature discuss the anti-competition effect of the MFC clauses by using models with homogeneous products the same as what is done to the LPG clauses. Instead, I study the anti-competition effect of the MFC clauses with horizontally differentiated goods in a repeated Bertrand competition and find the anti-competition effect highly related to the homogeneity of products. The MFC clauses have a strong anti-competition effect especially when the homogeneity of product and hassle costs are low. However, considering the potential harm of tacit collusion, the MFC clauses should be concerned by the antitrust agency only when the homogeneity of product is intermediate.

Keywords: Most-Favored-Customer Clauses; Differentiated Products; Bertrand Competition; Tacit Collusion (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2022-12-30
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