Most exclusive contracts are advantageous because they promote marketing support for the manufacturer`s brand. By becoming an expert in a manufacturer`s products, the distributor is encouraged to specialize in promoting that manufacturer`s brand. This may include offering special services or amenities that cost money, such as . B, an attractive company, trained salespeople, long opening hours, an inventory of available products or a fast warranty service. But the cost of providing some of this equipment – which is offered to consumers before the product is sold and may not be covered if the consumer leaves without buying anything – can be difficult to pass on to customers in the form of a higher retail price. For example, the consumer may take a „free ride” on one retailer`s valuable services and then buy the same product at a lower price from another retailer that doesn`t offer expensive amenities like a discount warehouse or online store. If the full-service retailer loses enough sales in this way, they may eventually stop offering the services. If those services were really useful, in the sense that the product and services combined resulted in higher sales for the manufacturer than the product alone would have benefited, there would be a loss for the manufacturer and the consumer. As a result, antitrust law generally allows priceless vertical restraints, such as exclusive distribution agreements.
B, which aim to encourage retailers to provide additional services. In some situations, exclusive trade can be used by producers to reduce competition between them. For example, the FTC challenged exclusivity provisions in purchase agreements used by two major manufacturers of fire truck pumps. Each company sold pumps to fire truck manufacturers on the condition that additional pumps be purchased from the manufacturer who had already supplied them. These exclusive supply contracts functioned as a customer allocation agreement between the two pump manufacturers, so that they no longer competed with each other`s customers. Exclusive distribution or demand agreements between manufacturers and retailers are common and generally legal. Simply put, an exclusive distribution agreement prevents a distributor from selling another manufacturer`s products, and a demand contract prevents a manufacturer from buying inputs from another supplier. Such agreements shall be assessed in accordance with a standard of reason which balances all pro-competitive and anti-competitive effects.
On the other hand, a market-powerful producer can potentially use this type of vertical agreement to prevent smaller competitors from succeeding in the market. For example, exclusivity agreements can be used to deny a competitor access to retailers or distributors, without which the competitor cannot make sufficient sales to be profitable. For example, the FTC found that a pipe fittings manufacturer was illegally maintaining its monopoly on domestically produced ductile iron pipe fittings by requiring its distributors to purchase household accessories exclusively from it and not from its competitors attempting to enter the domestic market. The FTC concluded that this manufacturer`s policy prevented a competitor from making the sales necessary for effective competition. On the supply side, exclusive contracts can bind most of the cheapest sources of supply and force competitors to look for more expensive sources. This is the scenario that led to FTC allegations that a large pharmaceutical company violated antitrust laws by obtaining exclusive licenses for an essential ingredient. The FTC claimed that the licenses led to an increase in the cost of ingredients for its competitors, leading to higher retail drug prices. A: Exclusive distribution agreements like this are generally allowed. Although the retailer is prevented from selling competing flat panels, it may be the type of product that requires a certain level of knowledge and service to be sold.
For example, if the manufacturer invests in training the retailer`s sales staff on the operation and attributes of the product, it can reasonably require the retailer to commit to selling only its brand of monitors. This level of service benefits buyers of sophisticated electronic products. As long as there are enough outlets for consumers to buy your products elsewhere, antitrust laws are unlikely to interfere with these types of exclusive agreements. For more information about exclusive licensing agreements related to intellectual property rights, see Antitrust Guidelines for Intellectual Property Licensing. Q: I am a small manufacturer of high quality flat panel displays. I`d like to bring my products to a big box retailer, but the company says they have a deal to only sell flat panel displays made by my competitor. Isn`t that illegal?. . . .