Most-favored-customer pricing, product variety, and welfare

Lluís M. Granero

Economics Letters, 2013, vol. 120, issue 3, 579-582

Abstract: Most-favored-customer (MFC) clauses are usually seen as anticompetitive co-ordination devices that firms adopt for the purpose of higher prices. Here, I examine the welfare impact of MFC clauses under endogenous product variety. Product variety is relevant because prospective higher prices from MFC clauses can be anticipated by multi-product firms in their provision of product lines. Under such circumstances, I find that these clauses can be socially harmful, but this is not always the case: they tend to be socially neutral for relatively large fixed costs of product-line assortment, harmful for intermediate costs, and beneficial for relatively small costs.

Keywords: Most-favored-customer clause; Product variety; Multi-product firms; Antitrust policy (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:120:y:2013:i:3:p:579-582

DOI: 10.1016/j.econlet.2013.06.028

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