Question:
Some manufacturers that contract with the United States government have most favored nation clauses in their contracts. This provision makes the firm sell to the government at the lowest price it charges to any other customer. On the surface this provision seems to be advantageous to the government because it assures them the lowest price charged to any customer. Others argue, however, that the clause gives manufacturers more power in bargaining with other buyers. Discuss the effect of such clauses on both the government, and other customers, noting, inter alia, the effect on the selling firm's bargaining power.