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| Author: | Chen, J. Liu, Q. |
| Title: | The effect of most-favored customer clauses on prices |
| Journal: | Journal of Industrial Economics
2011 : SEP, VOL 59:3, p.343-371 |
| Index terms: | retail industry electronics industry competition price cutting consumers |
| Language: | eng |
| Abstract: | We research the impacts of introducing a Most-Favored Customer (MFC) clause on price competition in the midst of major consumer electronics retailers. The data spans the periods before and after the start of an MFC clause by Best Buy, which occurred between April 1, 2003 and March 31, 2004. After controlling for a variety of factors, including product life-cycle and seasonality effects, it is found that Best Buy lowered its prices by an average of 1.6% after introducing the MFC clause. Its competitors answered by cutting prices further: Buy.com by 3.5%, Circuit City by 2.2%, CompUSA by 3.2%, and Sears by 0.4%. The conclusion is that Best Buy's MFC adoption reduced prices. |
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