Potential Anticompetitive Effects of “Most Favored Nation” ClausesAntitrust Byte April 5, 2018
There are a few limited circumstances under which a buyer can cause an anticompetitive effect on a market. One instance is when parties enter into agreements that include what are known as “most favored nation” (“MFN”) clauses. MFN clauses are contractual provisions in which a seller guarantees that no other buyer will be treated more favorably than the contracting MFN buyer.
While MFN clauses can produce certain efficiencies, and are therefore analyzed under the rule of reason, they can raise concerns, particularly in highly concentrated markets where the MFN buyer has dominance over the purchases of the product. In these situations, the seller has little incentive to decrease prices to other customers, as the total reduction in revenue caused by the fact that the lower price would need to be given to the MFN buyer could be substantial. This disincentive can have the effect of setting a floor on prices and otherwise creating barriers to new market entry.
Companies presented with a contract containing MFN clauses should be mindful of their potential anticompetitive effects and consider the relative market position of the buyer before agreeing to such clauses.
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For additional information about the issues discussed above, or if you have any other antitrust concerns, please contact the Epstein Becker Green attorney who regularly handles your legal matters, or one of the authors of this Antitrust Byte: