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Exclusive Dealing Agreements Definition

Duration and terminations. The duration and completion of an exclusivity agreement is technically a matter of competitive silos and prejudice analyses, but these factors often affect a right to exclusivity. Short-term agreements (one year or less) or those that can be easily terminated are more likely to convince a judge, jury or agency that the market has not been damaged or severely closed. Exclusive trade can be seen as an obstacle to entry[6], particularly in a market based on imperfect competition, which is either a monopoly or an oligopoly, if there is price and product differentiation and an imbalance of market power between established firms, market players and competitors due to existing vertical integrations within the market. , resulting in inefficiencies in the market. In some cases, producers may use exclusive trade to reduce competition between them. For example, the FTC challenged exclusive provisions in sales contracts used by two major manufacturers of combustion vehicle pumps. Each company sold pumps to fire engine manufacturers on the condition that additional pumps were purchased by the manufacturer that was already supplying them. These exclusive supply contracts functioned as a customer award agreement between the two pump manufacturers, so that they no longer competed for each other`s customers. As a general rule, an exclusive contract is maintained if the contract does not have a negative effect on trade and competition.

This finding is based on a judicial assessment of the market and the location of the products. Most exclusive commercial contracts are beneficial because they promote marketing support for the manufacturer`s brand. By becoming an expert on a manufacturer`s products, the distributor is encouraged to specialize in promoting that manufacturer`s brand. This may include offering special services or equipment that cost money, such as an attractive business. B, trained salespeople, long hours of work, an inventory of available products or a quick warranty service. The cost of providing some of these amenities to consumers before the sale of the product, which cannot be recovered if the consumer leaves without buying anything, can hardly be passed on to customers in the form of a higher retail price. For example, the consumer may take a “free trip” on the value services offered by a retailer, and then purchase the same product at a lower price than another retailer that does not offer expensive equipment, such as a discount store or online store. If the full-service distributor loses enough revenue, it will no longer be able to offer the services at any given time.