Introduction

This chapter considers whether supracompetitive prices can result from the combination of public advance notification of list-price increases and the use of contractual provisions that ensure the buyer of obtaining the best available price. Under advance notification a list-price increase will typically be announced in the trade press several days before the advance notice deadline, which is usually 30 days before the effective date of the price increase. Then other firms' list-price announcements indicate whether they are willing to follow the increase. The resulting ‘price signalling’ may enable firms to collude tacitly on list prices.

‘Best-price’ provisions give buyers both meet-or-release and most-favoured-customer protection. A meet-or-release clause requires a seller to meet a lower offer to his customer or to release the customer from the contract; a most-favoured-customer clause guarantees that the buyer is receiving the lowest price offered to anyone by the seller. Best-price provisions may reduce incentives to offer discounts from list prices because discounts must be offered to all customers with most-favoured-customer protection and discounts offered to a competitor's customers are likely to be matched if contracts have meet-or-release clauses. Alternatively, the use of most-favoured-customer clauses may make a firm more vulnerable to discounting, because a firm with such clauses in its contracts has reduced incentives to match a discount offer.