A Most-Favoured-Customer Clause (MFC) is a

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

ual arrangement between vendor and customer that guarantees the customer the best price the vendor gives to anyone. The MFC prevents a company from treating different customers differently in negotiations. For example, on July 20, 2011,

American Airlines American Airlines is a major airlines of the United States, major US-based airline headquartered in Fort Worth, Texas, within the Dallas–Fort Worth metroplex. It is the Largest airlines in the world, largest airline in the world when measured ...

announced an order for 460

narrowbody A narrow-body aircraft or single-aisle aircraft is an airliner arranged along a single aisle, permitting up to 6-abreast seating in a cabin less than in width. In contrast, a wide-body aircraft is a larger airliner usually configured with mult ...

jets including 260

Airbus A320 The Airbus A320 family is a series of Narrow-body aircraft, narrow-body airliners developed and produced by Airbus. The A320 was launched in March 1984, Maiden flight, first flew on 22 February 1987, and was introduced in April 1988 by Air F ...

s. The order broke

Boeing The Boeing Company () is an American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles worldwide. The company also provides leasing and product ...

's monopoly with the airline and forced Boeing into the re-engined

737 MAX The Boeing 737 MAX is the fourth generation of the Boeing 737, a narrow-body airliner manufactured by Boeing Commercial Airplanes (BCA), a division of American company Boeing. It succeeds the Boeing 737 Next Generation (NG) and competes with th ...

. As this sale included a "most favoured customer clause", the European airframer has to refund any difference to American Airlines if it sells to another airline at a lower price. Big box retailers such as

Wal-Mart Walmart Inc. (; formerly Wal-Mart Stores, Inc.) is an American multinational retail corporation that operates a chain of hypermarkets (also called supercenters), discount department stores, and grocery stores from the United States, headquarter ...

and

Costco Costco Wholesale Corporation (doing business as Costco Wholesale and also known simply as Costco) is an American multinational corporation which operates a chain of membership-only big-box retail stores (warehouse club). As of 2022, Costco i ...

often use their

monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...

power to demand MFC from their suppliers. In one anecdote recalled by Costco CEO Jim Sinegal, a frozen-food supplier to both Wal-Mart and Costco accidentally sent Wal-Mart's invoice to Costco by mistake, and as the invoice revealed that Wal-Mart received lower pricing on the same goods, Costco immediately terminated its relationship with that supplier.

Evaluation under competition law in EU and US

While it may appear that MFCs benefit consumers because prices are lowered, 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 entrants from offering products at lower prices. It thus prevents competition.

References

{{reflist Contract clauses Consumer protection