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Most favoured customer status

Summary:
One of the things that annoys about the neoliberal era is the constant advice to “shop around” for the best deal for services we could once assume were fairly priced, like electricity or banking services. A crucial feature of this is that you can’t do this once and for all.  Loyal customers are routinely punished by being left on unfavourable deals while new customers are offered better terms. It struck me that we could get substantially better outcomes from markets if all firms were required to extend to existing customers any offer made to new ones.* That would greatly reduce churn and wasteful sales efforts, hopefully leading to a reversal of the increase in retail margins we’ve seen in areas like electricity. This would be the equivalent of Most Favoured Nation status in trade

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One of the things that annoys about the neoliberal era is the constant advice to “shop around” for the best deal for services we could once assume were fairly priced, like electricity or banking services. A crucial feature of this is that you can’t do this once and for all.  Loyal customers are routinely punished by being left on unfavourable deals while new customers are offered better terms.

It struck me that we could get substantially better outcomes from markets if all firms were required to extend to existing customers any offer made to new ones.* That would greatly reduce churn and wasteful sales efforts, hopefully leading to a reversal of the increase in retail margins we’ve seen in areas like electricity.

This would be the equivalent of Most Favoured Nation status in trade policy, which ensures that all members of the World Trade Organization receive the same treatment. Interestingly, the Wikipedia article on Most Favoured Nation status refers only to an anti-competitive version of Most Favoured Customer status, where MFC status is extended only to selected customers.

I’m a bit ambivalent about suggesting ways to make neoliberalism work better, especially as it is now in retreat, but I think it will be around for a while yet, so reforming obvious failures seems like a worthwhile idea.

* I can imagine a case for some limited exemptions, for example, for “try before you buy” deals.

John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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