This article examines the role of the most-favored-customer pricing policy as a practice facilitating coordination in a dynamic model of price-setting duopoly. This policy is a promise by a firm that if it later lowers price, it will rebate to current customers the difference between the price...

Previous work has viewed the most-favored-nation (MFN) contract as a practice capable of facilitating collusion among sellers, but this paper shows that even a monopoly seller may gain by including the MFN provision in sales contracts. We consider a case in which the seller negotiates price...