Policy Briefing: Retail Price MFNs: Are they RPM ‘at its worst’?

Policy Briefing of CCP Working Paper 14-5:

Amelia Fletcher and Morten Hviid, ‘Retail Price MFNs: Are they RPM ‘at its worst’?’. (Available to download from our Working Papers pages on the CCP website).

KEYWORDS: Retain Price Most Favoured Nation clauses, Retail Price Maintenance, anti-competitive effects, competition law

BACKGROUND

  • A number of recent competition cases have involved a hitherto rarely observed form of Most Favoured Nation (MFN) clause in which sellers through an internet retail platform explicitly agree not to sell at a lower price elsewhere, including through other retail platforms. These are sometimes known as platform MFNs or platform parities.

  • The economics literature on this topic is still nascent and the effects of these clauses have not yet been fully explored.

  • Competition authorities in a number of jurisdictions including the EU, Germany, the UK and the US have been willing to take on such cases and push them to successful conclusions, with the parties either agreeing, or being required, to drop Retail Price MFN clauses.

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‘The effects of asymmetric costs on cartel damages: The importance of the counterfactual’

The CCP seminar returns from its Easter break on Friday 2nd May and we are delighted to welcome Peter Møllgaard (Copenhagen Business School) to the Centre. Peter will be presenting his article entitled ‘The effects of asymmetric costs on cartel damages: The importance of the counterfactual‘ which he has written with his colleague at Copenhagen, Petter Berg. An earlier draft of the article can be found at this link, and an abstract for the paper can be found below.

Abstract

Cartel overcharges and the resultant damages and welfare losses are typically calculated by subtracting counterfactual prices from cartel prices. We determine both prices in a repeated game with cost asymmetries and product differentiation. Whereas cost asymmetries and product differentiation signifcantly affect counterfactual prices, they only have small effects on collusive prices. We find that over-charges and losses in consumer welfare increase with the degree of cost symmetry and substitutability of products. The case of symmetric costs and homogeneous products makes for the extreme case in which welfare losses are maximal and restitution of damages undercompensates consumers the most.

The seminar will take place from 13:00-14:00 in the Elizabeth Fry Building, Room 1.01.