Since its introduction into GATT in 1947, the most-favoured-nation clause has crossed the boundaries from the international trade scene to the business world. Outside the realm of law and international relations, most-favoured-nation clauses have two objectives: (1) to strengthen or maintain relationships with key customers, customers or suppliers, and (2) to provide certain assurances to early risk takers. The application of most-favoured-nation clauses is unlikely to raise competition concerns if the parties to a most-favoured-nation clause do not have market power (Salop and Scott Morton, 2013). As explained above, the existence of most-favoured-nation agreements, in which the supplier grants a discount to a particular party, obliges the supplier to grant the same discount to the most-favoured-nation party, thereby deterring such selective price reductions. However, this deterrence is likely to be weak if the buyer concerned has only a weak market presence. In other words, the “discouragement” created by the need to offer a discount to a small player with a relatively low level of purchase would be less likely to discourage suppliers from offering discounts. The granting of most-favoured-nation clauses only to small operators may well lead to a reduction in prices on the downstream market by ensuring that small operators also benefit from discounts for large companies. If the supplier also represents a small share of the supply on the market, the prospect of negative effects on the overall price level on the relevant market would be even less likely, given that other suppliers not bound by similar agreements could meet excessive demand and offer discounts to cover the most-favoured-nation supplier`s transactions. Since most-favoured-nation clauses and MFCs are of the same nature, these types of clauses are referred to in this article as most-favoured-nation clauses. PCWs in the CMA`s PMI market investigation also used stowaway prevention as a justification for most-favoured-nation retail. The CMA did not consider the prospect of parasitism through other platforms to be a significant issue, so it did not conclude that the general most-favoured-nation treatment made a pro-competitive contribution in this regard (CMA 2014, 8.106).
With regard to the narrow-minded most-favoured-nation clauses, the agency argued that there was some risk of parasitism on the part of the KP suppliers themselves, especially since the research results showed the supplier of the cheapest offer. In this context, the Authority hypothesized that this risk could be addressed through other means such as “quota poaching clauses” and other royalty models, but ultimately did not consider it necessary to reach a final position, as it had already waived the condemnation of narrowly favoured-nation clauses (MAC 2014, 8.100-101). We argue that a model guideline should discuss the specific efficiency gains that can be achieved through the use of most-favoured-nation clauses and the specific contexts in which most-favoured-nation clauses can have particularly strong pro-competitive effects. In particular, in the case of EU law, the identification of potential pro-competitive effects would serve as a guide for the first element of individual exemption analyses under Article 101(3) TFEU, where the granting of an individual exemption is considered to `contribute to improving the production or distribution of goods or to promoting technical or economic progress`. The main problem I see when I read the most-favoured-nation clauses is that they often tend to be too vague. Most-favoured-nation clauses can cause real problems if they are not strictly controlled. Even the GATT 1994 provides for exceptions to the most-favoured-nation clause. For example, for national security purposes and regional trade agreements (yes, some countries may receive more favourable treatment than the most favoured country). Here are some considerations when drafting or negotiating a most-favoured-nation bond: In other words, “most-preferred nation” means “equal to your most-favored customer.” This means that the customer`s fee will match your lowest fee. As Dennis (1995) points out, most-favoured-nation clauses not only affect the buyer-seller relationship: “By affecting the business relationships of other buyers, most-favoured-nation clauses can indirectly influence the price structure of the entire market and all persons in it” (Dennis 1995, p.
77). Fiona Scott Morton, formerly of the U.S. Department of Justice, later expanded this concept by defining a category of “contracts that point to rivals” that have the potential to harm consumers and competition, “particularly when they affect companies with market power” (Scott Morton 2012, p. 3). In particular, various academic sources have noted the prevalence of most-favoured-nation clauses or similar structures in long-term energy contracts, see Crocker and Lyon (1994), Mulherin (1986), Canes and Norman (1986). In its preliminary assessment, the Commission argued that the reciprocal use of these most-favoured-nation clauses would have acted as an `instrument of obligation` for retailers, as they could have led to a significant drop in revenue for publishers if they had not stopped the price decline on Amazon or other retailers operating under the `resale model`. (Case COMP/39.847 – E-Books 2013a, paragraph 38) Apple was involved in the concerted action between publishers because it enabled concerted behavior by disclosing information about the intentions of each of the retailers. The resulting commitments included a prohibition on the use of most-favoured-nation clauses for retail customers, as well as most-favoured-nation “wholesale” clauses (concerning wholesale prices from publishers to retailers) and “commission/revenue sharing” (as regards the amount of the commission/revenue share received by a retailer under the agency model) (Case COMP/39.847 – E-Books 2013a, period . . .
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