Research Details

Abstract

This paper analyzes the economics of contemporaneous most-favored customer clauses (MFCC) in a non-cooperative n-firm oligopoly. In the first stage of a two-stage game, each firm indepedently decided whether to adopt MFCC; in the second stage, firms set prices non-cooperatively, given the first stage choices. In contrast to work on retroactive MFCC by Cooper [The RAND Journal of Economics (1986, 17, 37-388)], our analysis shows that not adopting MFCC can be a dominant strategy. The difference between our results and Cooper's highlights important differences between retroactive and contemporaneous MFCC and suggests that MFCC are a less powerful facilitating practice than retroactive MFCC. Our analysis also sheds new light on Grether and Plott's [Economic Inquiry (1984, 22, 497-507)] experimental results regarding the effects of MFCC on average industry prices.

Type

Article

Author(s)

David Besanko, Thomas P. Lyon

Date Published

1993

Citations

Besanko, David, and Thomas P. Lyon. 1993. Equilibrium Incentives for Most-Favored Customer Clauses in Oligopolistic Industry. International Journal of Industrial Organization.(3): 347-367.