Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Comment

Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity:... By LESLIE M. MARX Nondiscrimination clauses, also known as most-favored-customer clauses, make a seller’s best terms available to all buyers. These clauses, which are frequently found in both final-goods and intermediate-goods markets, allegedly provide the seller with a commitment device not to lower price to future buyers. Well-known examples in the literature are Thomas E. Cooper (1986) and David A. Butz (1990).1 Cooper (1986) shows that nondiscrimination clauses can dampen competition over time by inducing less aggressive pricing on the part of a firm’s rivals. Butz (1990) shows that nondiscrimination clauses can solve the well-known time inconsistency problem with durable goods. In both models, nondiscrimination clauses commit the seller to its initial price; if the seller were to offer better terms to a later buyer, all previous buyers would request the same treatment, and the seller’s attempt to lower price selectively would be defeated. However, the notion that previous buyers would automatically request the same treatment if a later buyer were to receive better terms (e.g., a lower average price) has been challenged by R. Preston McAfee and Marıus ´ Schwartz (1994) in the case of intermediategoods markets. They show that nondiscrimination clauses may be ineffective in committing http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Comment

American Economic Review , Volume 94 (3) – Jun 1, 2004

Loading next page...
 
/lp/american-economic-association/opportunism-in-multilateral-vertical-contracting-nondiscrimination-F3R3fNbTJj

References (37)

Publisher
American Economic Association
Copyright
Copyright © 2004 by the American Economic Association
Subject
Shorter Papers
ISSN
0002-8282
DOI
10.1257/0002828041464588
Publisher site
See Article on Publisher Site

Abstract

By LESLIE M. MARX Nondiscrimination clauses, also known as most-favored-customer clauses, make a seller’s best terms available to all buyers. These clauses, which are frequently found in both final-goods and intermediate-goods markets, allegedly provide the seller with a commitment device not to lower price to future buyers. Well-known examples in the literature are Thomas E. Cooper (1986) and David A. Butz (1990).1 Cooper (1986) shows that nondiscrimination clauses can dampen competition over time by inducing less aggressive pricing on the part of a firm’s rivals. Butz (1990) shows that nondiscrimination clauses can solve the well-known time inconsistency problem with durable goods. In both models, nondiscrimination clauses commit the seller to its initial price; if the seller were to offer better terms to a later buyer, all previous buyers would request the same treatment, and the seller’s attempt to lower price selectively would be defeated. However, the notion that previous buyers would automatically request the same treatment if a later buyer were to receive better terms (e.g., a lower average price) has been challenged by R. Preston McAfee and Marıus ´ Schwartz (1994) in the case of intermediategoods markets. They show that nondiscrimination clauses may be ineffective in committing

Journal

American Economic ReviewAmerican Economic Association

Published: Jun 1, 2004

There are no references for this article.