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Most-favored customer clauses with differentiated goods and tacit collusion

Author

Listed:
  • Chun-Chieh Wang

    (National Sun Yat-Sen University)

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.

Suggested Citation

  • Chun-Chieh Wang, 2022. "Most-favored customer clauses with differentiated goods and tacit collusion," Economics Bulletin, AccessEcon, vol. 42(4), pages 1755-1766.
    • Handle: RePEc:ebl:ecbull:eb-22-00570
    as

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    References listed on IDEAS

    as
    1. Fiona Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 269-290, Summer.
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    More about this item

    Keywords

    Most-Favored-Customer Clauses; Differentiated Products; Bertrand Competition; Tacit Collusion;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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