Kalpana Kalpana (Editor)

Most Favoured Customer Clause

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A Most-Favoured-Customer Clause (MFC) is a contractual arrangement between company and customer that guarantees the customer the best price the company gives to anyone. The MFC prevents a company from treating different customers differently in negotiations.

Contents

Pros

  • Makes you a tougher negotiator
  • Reduces your customers’ incentive to bargain

    • Cons

  • Makes it easier for a rival to target one of your customers
  • Makes it harder for you to target one of your rival’s customers

    • Pros

  • Allows you to benefit from any better deal subsequently offered to other customers
  • Ensures that you’re not at a cost disadvantage relative to rivals
  • Eliminates the risk of looking bad if other customers strike better deals

    • Cons

  • When others have MFCs, it’s harder for you to get a “special” deal.

    • Evaluation under Competition law in EU and US

    While it may appear that MFCs benefit consumers because prices are lowered, views have changed in recent years (starting approx 2012). Authorities increasingly argue that such clauses prevent the offer of lower prices elsewhere and make the market entry of competitive offers considerably more difficult because they prevent new offers from offering products at lower prices. It thus violates competition.

    References

    Most-Favoured-Customer Clause Wikipedia
    (Text) CC BY-SA