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Most-favored-customer pricing, product variety, and welfare

  • Granero, Lluís M.

Most-favored-customer (MFC) clauses are usually seen as anticompetitive co-ordination devices that firms adopt for the purpose of higher prices. Here, I examine the welfare impact of MFC clauses under endogenous product variety. Product variety is relevant because prospective higher prices from MFC clauses can be anticipated by multi-product firms in their provision of product lines. Under such circumstances, I find that these clauses can be socially harmful, but this is not always the case: they tend to be socially neutral for relatively large fixed costs of product-line assortment, harmful for intermediate costs, and beneficial for relatively small costs.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 120 (2013)
Issue (Month): 3 ()
Pages: 579-582

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Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:579-582
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. William S. Neilson & Harold Winter, 1993. "Bilateral Most-Favored-Customer Pricing and Collusion," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 147-155, Spring.
  2. Zhang, Z John, 1995. "Price-Matching Policy and the Principle of Minimum Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 287-99, September.
  3. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, 07.
  4. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn.
  5. Anne T. Coughlan & Greg Shaffer, 2009. "—Price-Matching Guarantees, Retail Competition, and Product-Line Assortment," Marketing Science, INFORMS, vol. 28(3), pages 580-588, 05-06.
  6. Ramon Caminal & Lluís M. Granero, 2008. "Multi-product firms and product variety," Working Papers 338, Barcelona Graduate School of Economics.
  7. Morten Hviid & Greg Shaffer, 2010. "MATCHING OWN PRICES, RIVALS' PRICES OR BOTH? -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 479-506, 09.
  8. Neilson, William S. & Winter, Harold, 1992. "Unilateral most-favored-customer pricing : A comparison with Stackelberg," Economics Letters, Elsevier, vol. 38(2), pages 229-232, February.
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