What does Amazon’s contract with some online sellers have in common with State Farm’s direct repair agreement?
The answer: most-favored-nation clauses.
Scrutiny by government regulators could be behind Amazon’s decision earlier this year to drop that clause in the United States, which required third-party sellers to price their products on Amazon no higher than they do anywhere else. Amazon had previously ceased using such “most-favored-nation” (or “price parity”) contract clauses in some European countries after government investigations.
The revived interest in the potentially anti-competitive impacts of most-favored-nation clauses (MFNs) – such as the one State Farm “Service First” shops have had to sign since 2006 – was discussed by the Collision Industry Conference (CIC) “Governmental Committee” in Indianapolis in late July. Michigan attorney Stephen Bolerjack, whose practice focuses on antitrust and contract issues in the automotive industry, said that on the surface, MFNs appear pro-competitive and simplify the negotiation process between parties. But they also can focus solely on price and overlook other factors that can impact pricing, he said.
“If the seller is doing something different with other buyers, there’s a tendency to ignore that,” Bolerjack said, launching into a fictional conversation to offer an example. “‘Well, gee, you gave them a better deal.’ ‘Well, yeah, because he’s agreed to give me 50 percent of his business in the three-county area, so yes, I gave him a 10 percent discount. Do you agree to that?’ The answer likely will be ‘We just like the lower price. That’s what we’re interested in.’”
Darrell Amberson, a collision repairer who chairs the CIC committee, said that’s the case with some MFNs in the collision industry. They may require that a shop give a particular insurer all of the lowest rates or biggest discounts the shop offers any other insurer on parts or labor, even if the shop offers no more than any one of those price-breaks to any other single insurer.
Amberson works for a regional multi-location collision repair business, and said even if just one of its locations belongs to an insurer’s DRP, all of its locations must give any discounts that one store offers to that DRP to other insurers who use an MFN.