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Most-favored-nation clauses in commercial contracts: legal and economic analysis and proposal for a guideline

Author

Listed:
  • Gönenç Gürkaynak

    (ELIG, Attorneys-at-Law
    Bilkent University Law School
    Yeditepe University Law School)

  • Ayşe Güner

    (ELIG, Attorneys-at-Law)

  • Sinan Diniz

    (ELIG, Attorneys-at-Law)

  • Janelle Filson

Abstract

The prevalent use of “most favored nation” (MFN) clauses in commercial agreements has garnered significant attention in the economics and legal literature and by practitioners and enforcement agencies. From an antitrust standpoint, there is a strong consensus that while MFN provisions can lead to procompetitive outcomes or at least play a competitively neutral role, they may also result in competitive harm and a loss of consumer welfare. Therefore, US and EU enforcement agencies and courts have held that MFNs should be reviewed on a case-by-case basis, considering the specific characteristics of both the contractual provision and the industry. While a case-by-case approach is valid, it is not ideal from a variety of standpoints: that of the competition authorities seeking to make best use of their limited resources and that of practitioners seeking to advise their clients. Accordingly, published guidelines on the use of MFNs, containing presumptions and safe harbors, would be both efficient and useful. The paper argues that it would increase the efficiency and accuracy of antitrust enforcement if one of the leading competition authorities issued MFN guidelines. The paper suggests a set of presumptions and safe harbors that should be included in any such guidelines.

Suggested Citation

  • Gönenç Gürkaynak & Ayşe Güner & Sinan Diniz & Janelle Filson, 2016. "Most-favored-nation clauses in commercial contracts: legal and economic analysis and proposal for a guideline," European Journal of Law and Economics, Springer, vol. 42(1), pages 129-155, August.
    • Handle: RePEc:kap:ejlwec:v:42:y:2016:i:1:d:10.1007_s10657-015-9515-y
    DOI: 10.1007/s10657-015-9515-y
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    References listed on IDEAS

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    1. Fiona M. Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," Yale School of Management Working Papers ysm58, Yale School of Management.
    2. Crocker, Keith J & Lyon, Thomas P, 1994. "What do Facilitating Practices Facilitate? An Empirical Investigation of Most-Favored-Nation Clauses in Natural Gas Contracts," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 297-322, October.
    3. Fiona Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 269-290, Summer.
    4. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-1076, December.
    5. Mulherin, J Harold, 1986. "Complexity in Long-term Contracts: An Analysis of Natural Gas Contractual Provisions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 105-117, Spring.
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    More about this item

    Keywords

    Most favored nation clause; MFN; Most favored customer clause; MFC; Best price clauses; Price parity clauses;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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