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Platform most-favored-customer clauses and investment incentives

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  • Maruyama, Masayoshi
  • Zennyo, Yusuke

Abstract

This paper examines the effects of platform most-favored-customer (PMFC) clauses on incentives for platforms to invest in demand-enhancing investments that might involve spillover effects. In a bilateral duopoly model incorporating competition between sellers and between platforms, we show that the industry-wide adoption of PMFC clauses raises the platforms’ investment level and the resulting retail price if the substitution between platforms is large compared to the substitution between sellers. Additionally, we assess the respective effects of PMFC clauses on the demand, profit of sellers, profit of platforms, consumer surplus, and social welfare. The results suggest a possible conflict between platforms and competition authorities.

Suggested Citation

  • Maruyama, Masayoshi & Zennyo, Yusuke, 2020. "Platform most-favored-customer clauses and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:indorg:v:70:y:2020:i:c:s0167718720300394
    DOI: 10.1016/j.ijindorg.2020.102617
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    References listed on IDEAS

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    Cited by:

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    3. Saruta, Fuyuki, 2023. "Private labels and platform competition," MPRA Paper 119585, University Library of Munich, Germany.
    4. Kittaka, Yuta & Matsushima, Noriaki & Saruta, Fuyuki, 2022. "Negative effect of price-matching policy on traditional retailers in a dual-channel supply chain with different content formats," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 161(C).

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    More about this item

    Keywords

    Most-favored-customer clause; Platform investment; Price parity clause; Spillover effect; Vertical relation;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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