A Unilateral Pricing Policy and the Stackelberg Equilibrium

Cooper (1986) examined the equilibrium of the retroactive most-favored-customer pricing policy by using a two-period duopoly model. He showed that the most-favoredcustomer policy enables both firms to offer higher prices and to enjoy higher profits. Neilson and Winter (1992) showed that even if one firm in a price-setting duopoly adopts the most-favored-customer policy, the equilibrium does not coincide with the Stackelberg solution. This paper introduces a pricing policy by using a one-period two-stage model and shows that if one firm in a price-setting duopoly adopts this policy, then the equilibrium coincides with the Stackelberg solution.