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Dynamic Duopoly with Best-Price Clauses

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  • Monika Schnitzer

Abstract

This article investigates best-price clauses as a strategic devise to facilitate collusion in a dynamic duopoly game. Best-price clauses guarantee rebates on the purchase price if a customer finds a better price after his purchase. Two different price clauses are distinguished: "most favored customer" and "meet or release." I examine the collusive potential of both clauses in a finite-horizon duopoly model with homogeneous durable goods. In each period, new consumers enter the market. I show that in this context, meet-or-release clauses have a greater anticompetitive potential than most-favored-customer clauses.

Suggested Citation

  • Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring.
  • Handle: RePEc:rje:randje:v:25:y:1994:i:spring:p:186-196
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    Cited by:

    1. Granero, Lluís M. & Ordóñez-de-Haro, José M., 2015. "Entry under uncertainty: Limit and most-favored-customer pricing," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 1-11.
    2. Sebastian Wismer, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Working Papers 131, Bavarian Graduate Program in Economics (BGPE).
    3. Helfrich, Magdalena & Herweg, Fabian, 2016. "Fighting collusion by permitting price discrimination," Economics Letters, Elsevier, pages 148-151.
    4. Grosskopf, Brit & Roth, Alvin E., 2009. "If you are offered the Right of First Refusal, should you accept? An investigation of contract design," Games and Economic Behavior, Elsevier, vol. 65(1), pages 176-204, January.
    5. Le Coq, Chloé, 2003. "Long-Term Supply Contracts and Collusion in the Electricity Markets," SSE/EFI Working Paper Series in Economics and Finance 552, Stockholm School of Economics.
    6. Xu, Frances Zhiyun, 2011. "Optimal best-price policy," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 628-643, September.
    7. Mago, Shakun Datta & Pate, Jennifer G., 2009. "An experimental examination of competitor-based price matching guarantees," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 342-360, May.
    8. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.
    9. Chongwoo Choe & Stephen King & Noriaki Matsushima, 2017. "Pricing with Cookies: Behavior-Based Price Discrimination and Spatial Competition," Monash Economics Working Papers 07-17, Monash University, Department of Economics.
    10. Xia, Tian & Sexton, Richard J., 2002. "Can Food Processors Use Contracts To Influence Farm Cash Prices? The Competitive Implications Of Top-Of-The-Market And Related Pricing Clauses," 2002 Annual meeting, July 28-31, Long Beach, CA 19776, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Foros, Øystein & Kind, Hans Jarle & Shaffer, Greg, 2015. "Apple's Agency Model and the Role of Resale Price Maintenance," Discussion Papers 2015/32, Norwegian School of Economics, Department of Business and Management Science.
    12. Rosenkranz, Stephanie, 2003. "The Manufacturer's Suggested Retail Price," CEPR Discussion Papers 3954, C.E.P.R. Discussion Papers.
    13. Leslie M. Marx & Greg Shaffer, 2004. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Comment," American Economic Review, American Economic Association, vol. 94(3), pages 796-801, June.
    14. Spier, Kathryn E., 2001. "The Use of “Most-Favored-Nation†Clauses in Settlement of Litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt7hm4d39g, Berkeley Olin Program in Law & Economics.
    15. S. Rosenkranz, 2003. "Manufacturer's Suggested Retail Prices," Working Papers 03-05, Utrecht School of Economics.
    16. Andre Boik & Kenneth S. Corts, 2016. "The Effects of Platform Most-Favored-Nation Clauses on Competition and Entry," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 105-134.

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