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The most-favored-nation pricing policy and negotiated prices

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  • Cooper, Thomas E.
  • Fries, Timothy L.
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    Abstract

    Previous work has viewed the most-favored-nation (MFN) contract as a practice capable of facilitating collusion among sellers, but this paper shows that even a monopoly seller may gain by including the MFN provision in sales contracts. We consider a case in which the seller negotiates price separately with each of two buyers. By including a MFN clause in her contract with the first buyer, the seller raises her cost of granting price concessions to the second buyer. This increases the seller's bargaining strength with respect to the second buyer, thereby helping her negotiate a higher price.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 9 (1991)
    Issue (Month): 2 (June)
    Pages: 209-223

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    Handle: RePEc:eee:indorg:v:9:y:1991:i:2:p:209-223

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    Web page: http://www.elsevier.com/locate/inca/505551

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    Cited by:
    1. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
    2. Horn, Henrik & Mavroidis, Petros C, 2001. "Economic and Legal Aspects of the Most Favoured Nation Clause," CEPR Discussion Papers 2859, C.E.P.R. Discussion Papers.
    3. Begoña Garcia Mariñoso & Izabela Jelovac & Pau Olivella, 2011. "External referencing and pharmaceutical price negotiation," Post-Print halshs-00303682, HAL.
    4. Hua, Xinyu, 2012. "The right of first offer," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 389-397.
    5. Spier, Kathryn E., 2001. "The Use of “Most-Favored-Nation†Clauses in Settlement of Litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt7hm4d39g, Berkeley Olin Program in Law & Economics.
    6. Edwin L.-C. Lai, 2008. "The most-favored nation rule in club enlargement negotiation," Working Papers 0815, Federal Reserve Bank of Dallas.

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