Most-favored-customer pricing, product variety, and welfare
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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- Ramon Caminal & Lluís M. Granero, 2012.
"Multi‐product Firms and Product Variety,"
London School of Economics and Political Science, vol. 79(314), pages 303-328, 04.
- Ramon Caminal & Lluís M. Granero, 2008. "Multi-product Firms and Product Variety," UFAE and IAE Working Papers 734.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Ramon Caminal & Lluís M. Granero, 2008. "Multi-product firms and product variety," Working Papers 338, Barcelona Graduate School of Economics.
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- 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.
- Zhang, Z John, 1995. "Price-Matching Policy and the Principle of Minimum Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 287-299, September. Full references (including those not matched with items on IDEAS)
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