Take Action

Home | Faculty & Research Overview | Research

Research Details

Equilibrium Incentives for Most-Favored Customer Clauses in Oligopolistic Industry, International Journal of Industrial Organization

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. 11(3): 347-367.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action