Dynamic Duopoly with Best-Price Clauses

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 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.