The competitive effects of parity clauses on online commerce

Abstract

Parity clauses, also known as most-favoured-nation clauses, are designed to address the hold-up problem in vertical relations and facilitate investments and efficiencies by the downstream platform. However, when designed too broadly, they have the potential of undermining the dynamics of competition and reducing consumer welfare. This paper explores the welfare effects of parity clauses and reflects on the level of intervention they may call for. It reviews the possible theories of harm associated with parity clauses and draws a dividing line between the effects generated by narrow and wide parity.