What is exclusive dealing? How might it reduce competition and when might it be acceptable?

Exclusive dealing agreement is made between a product manufacturer and a dealer.

It is one of the practice used to curb competition.

As the name of the practice suggests- exclusive dealing, the product made is sold to final consumers only via dealers with whom such exclusive dealing is made. The agreement binds the manufacturer to sell all or a substantial portion of the manufactured products to the dealer, and vice versa (binding dealer to only purchase from the particular manufacturer).

It is a restrictive practice which aims at reducing competition in the market by curbing the competition among dealers by giving them exclusive dealership of the products. Antitrust laws hence rule out against such practices.

The practice can be labelled legal or illegal depending on the intention of such contracts. It can be legally allowed and hence maybe acceptable if it aims at encouraging competition between the dealers. For eg. Ford company may choose to sell its cars to Ford dealers only. But, it will become illegal if it limits competition. For instance, a large retailer obtains the exclusive dealership membership in many electronic products, then the consumers will face the effects of such concentration of power.