Most Favoured Nations Clauses in Digital Music: Collusion in Pricing?

12 Jan ’06

Following on its recent coverage of the Spitzer investigation, the WSJ has another piece today on pricing in the digital music business – today’s article focuses on criticism of the apparently common use by large labels of MFN clauses, with allegedly anticompetitive results.

The entire piece is interesting, but something else also caught my eye:

Some music-company executives defend the use of MFNs, calling them legitimate tools for delivering their offerings quickly to consumers in the rapidly shifting and unpredictable world of technologies, without getting bogged down in lengthy, nitpicking negotiations.

“Tools for delivering their offerings quickly”? I thought an associate in a NY law firm was a tool for delivering offerings quickly. And I would have thought that the way to avoid a “lengthy nitpicking negotiation” was to work quickly, and … well, not nitpick. Honestly, the assertion that a party that would otherwise fiercely negotiate a proposal made directly will accept the same proposal without complaint if it is made indirectly seems rather bizarre.

Finally, the article notes that “[a]t least one global music company has begun trying to ensure in its contracts that it can examine the terms of its competitors’ agreements.” I understand the practical difficulty of enforcing an MFN, but surely this is pretty strong evidence of an over-concentration of market power.

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