GUARANTEED PRICING IN INDUSTRIAL PURCHASES - MAKING USE OF MARKETS INCONTRACTUAL RELATIONS

Two types of price guarantees are considered. (1) meeting competition clauses, where firms meet the lowest price offered by rivals; and (2) most favored customer clauses, where firms meet the lowest price recei ved by any of its buyers. Relying upon the recent transactions costs l iterature, we examine how price guarantees affect the ability to enter and maintain contracts. We also consider strategic effects on other f irms' pricing policies. Our analysis suggests conditions under which p rice guarantees are most likely to be advantageous to buyers and selle rs.