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Most-Favored-Customer Clauses and Multilateral Contracting: When Nondiscrimination Implies Uniformity

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  • Patrick de Graba
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    Abstract

    "DeGraba and Postlewaite (1992) show that the seller of a durable input can solve the time inconsistency problem by offering most-favored-customer (MFC) protection to buyers. McAfee and Schwartz (1994) show that if a supplier sells inputs to competing firms using two-part tariffs, MFC protection that allows a firm to replace its contract with a" contract "executed by any other firm will not solve the commitment problem, and argue this implies managers cannot use MFCs as a strategic commitment device in complex contracting situations. This paper shows that if the profits of the seller and the buyers are monotonic in each term of the contract, then applying MFC protection to" each term "of a contract allows a manager to solve his commitment problem in complex contacting situations. We show that "standard" contract arrangements (two-part tariffs, declining block tariffs, and royalties as a percentage of sales) meet this condition." Copyright 1996 The Massachusetts Institute of Technology.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 5 (1996)
    Issue (Month): 4 (December)
    Pages: 565-579

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    Handle: RePEc:bla:jemstr:v:5:y:1996:i:4:p:565-579

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Kumkar, Lars, 1998. "Privatwirtschaftliche Koordinierungsstrukturen in vertikal strukturierten Industrien: Eine Analyse der Stromwirtschaft auf Grundlage der neuen Institutionenökonomik," Kiel Working Papers 873, Kiel Institute for the World Economy.
    2. Roman Inderst & Tommaso Valletti, 2006. "Price Discrimination in Input Markets," CEIS Research Paper 73, Tor Vergata University, CEIS.
    3. Patrick Rey & Thibaud Verg�, 2004. "Bilateral Control with Vertical Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 728-746, Winter.
    4. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.

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