And so one way for example would be that if you know that a certain type of
behavior would trigger a response by your competitor, you can commit not to engage
in that kind of behavior. Right, so if that means that you cannot
choose that kind of behavior, it also means that there cannot be a response or
will not be a response by your competitor and, therefore, the market will be less
competitive overall. Now, another interesting aspect or
another interesting mechanism that works as a soft commitment is the so-called
most favoured customer clause.
It's a provision in sales contracts that you can write, which basically promises
the customer that he will get refunded if another customer is charged a
lower price sometime in the future. Most of the time these most favoured
customer clauses will have some time limit to it, usually six months or one
year. And that means that if within that time
period the price of a particular product ever goes down, you're going to be
refunded the difference between the price you paid and the price that someone else
pays at a later point. Now, again it sends two signals.
The first one is to the consumer. There's no point in waiting until the
prices go down because if you buy now then even if half a year
later the prices go down, you're going to pay the lower price.
That's the issue, that's the point of the most favorite customer clause.