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Bilateral Most-Favored-Customer Pricing and Collusion

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  • William S. Neilson
  • Harold Winter

Abstract

In a two-period differentiated products duopoly model, most-favored-customer (MFC) pricing policies allow firms to commit to prices above the Bertrand prices. It is shown here, however, that unless a restrictive and unappealing assumption is made about demand, there is no equilibrium in which both firms adopt MFC policies. The restrictive assumption is that at least one firm's demand is more responsive to changes in its opponent's price than to changes in its own price; otherwise, firms have an incentive to deviate from a greater-than-Bertrand price in the first period.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 24 (1993)
Issue (Month): 1 (Spring)
Pages: 147-155

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Handle: RePEc:rje:randje:v:24:y:1993:i:spring:p:147-155

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Cited by:
  1. Stephan, Levy, 2004. "Best-price Guarantees as a Quality Signal," MPRA Paper 13466, University Library of Munich, Germany, revised 02 Nov 2004.
  2. Xu, Frances Zhiyun, 2011. "Optimal best-price policy," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 628-643, September.
  3. Kazuhiro Ohnishi, 2009. "Capacity Investment and Mixed Duopoly with State-Owned and Labor-Managed Firms," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 49-64, May.
  4. Granero, LluĂ­s M., 2013. "Most-favored-customer pricing, product variety, and welfare," Economics Letters, Elsevier, vol. 120(3), pages 579-582.

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