Meet the Competition Pricing Clause

Meet the Competition Pricing Clause

Carbon Dioxide Industry

The carbon dioxide industry has significant barriers to entry such as high capital investment and transportations costs. Carbon dioxide itself is a commodity and there is virtually no product differentiation. With the exception of price, producers of carbon dioxide compete with service, reliability, and reputation. In general, producers in the closest proximity to a customer have the edge on other competitors but the costs of transportation are likely the same. These industry dynamics have allowed for few strong national and multiple regional manufacturers in the United States.

Rules of Competition

A trade association of industry stakeholders have proposed the industry consider a “Meet the Competition Pricing Clause” or MCPC to be placed in any producer-customer contract where both agree. An MCPC would give the incumbent producer the right to make the last matching price bid. Both parties must agree on including the MCPC in supply contract, but supply contracts do not require an MCPC. This rule helps determine how the pricing proposals take place and adds some structure to the negotiation process between buyers and sellers.

Implications of MCPC

Without an MCPC, incumbents and competitors would compete solely on price and could potentially lose a customer (or gain one) each time a service contract expires. An MCPC clause gives the incumbent seller the right to make the last bid, thus match the price offered and keep the business. This incumbent behavior would continue with each successive contract until the price falls below variable cost (cost of transporting the carbon dioxide to customer). At this point it would not make financial sense for the competitor to go after the incumbent’s business. The customer