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

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  • Granero, Lluís M.

Abstract

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.

Suggested Citation

  • Granero, Lluís M., 2013. "Most-favored-customer pricing, product variety, and welfare," Economics Letters, Elsevier, vol. 120(3), pages 579-582.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:579-582
    DOI: 10.1016/j.econlet.2013.06.028
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    References listed on IDEAS

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    1. Ramon Caminal & Lluís M. Granero, 2012. "Multi‐product Firms and Product Variety," Economica, London School of Economics and Political Science, vol. 79(314), pages 303-328, April.
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    Cited by:

    1. Oksana Loginova, 2019. "Price Competition Online: Platforms vs. Branded Websites," Working Papers 1906, Department of Economics, University of Missouri.
    2. Begoña Casino & Lluís M. Granero, 2021. "Green products, market structure, and welfare," Journal of Economics, Springer, vol. 134(2), pages 103-125, October.

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