Duhaime's Law Dictionary


Exclusive Dealing Definition:

An arrangement designed to throttle or control legitimate trade by the selection and exclusive use of a particular supplier's product.

Related Terms: Abuse of Dominant Position, Vertical Restraint, Tied Selling, Delivered Pricing

Canada's Competition Act describes exclusive dealing arrangements as follows, at 77(1)(a):

"Exclusive dealing means any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to deal only or primarily in products supplied by or designated by the supplier or the supplier’s nominee, or refrain from dealing in a specified class or kind of product except as supplied by the supplier or the nominee, and (b) any practice whereby a supplier of a product induces a customer to meet a condition set out (above) by offering to supply the product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out (above)."

In his 1976 article, Osgoode Hall Law School professor Mark Connelly wrote:

"Exclusive dealing is the practice whereby a supplier sells a product on condition that the customer take all of his requirements of that product from that supplier or, what is the same thing, refrain from purchasing products of the same class from the supplier's competitors. An exclusive dealing arrangement may exist between any two levels of distribution from production to consumption. For example, firm X, which is both a producer and  wholesaler of gasoline, may insist that service station retailers to whom it sells deal only in X-brand gasoline. Or firm Y, a miller, may require bakeries to which it sells flour to use exclusively Y-brand flour in baking. This latter type of exclusive dealing arrangement, where the restrained customer is itself the ultimate user of the product, rather than a dealer in it, is sometimes called a requirements contract....

"In exclusive dealing, the supplier says to the customer "I will sell you my widgets only if you will buy all of your widgets from me"; in tying, the supplier says, "I will sell you my widgets only if you buy my gidgets."

Facey and Asssaf also describe exclusive dealing:

"Exclusive dealing occurs when a supplier requires (or induces) a customer distributor to deal exclusively (or primarily) in that supplier's products...."

Musgrove adds:

"(E)xclusive dealing must be sufficiently repeated or sustained so as to constitute a practice. The term practice is not defined (but) the Bureau has taken the view that ... a practice is normally more than one isolated act...."

As with many elements of modern antitrust or competition statutes, the Courts struggle to differentiate conduct which may have a glean of exclusive dealings but which in fact is not bad faith, predatory commercial conduct towards others, and which may under all the circumstances be of larger benefit to the consumer than the harm caused by the exclusive dealings.

A March 2012 publication of Canada's Competition Bureau entitled The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act), Enforcement Guidelines Draft for Public Consultation, contained these words:

"Exclusionary conduct is designed to make current and/or potential rivals less effective at disciplining the exercise of a firm's market power, to prevent them from entering the market, or to eliminate them from the market entirely....

"(E)xclusive dealing ... can serve to increase the price competitors pay for a necessary input, facility, service, or resource, which may make it more difficult for them to compete, or may result in their exclusion from the market."

REFERENCES:

  • Competition Act, RSC 1985, c C-34
  • Connelly, Mark, Exclusive Dealing and Tied Selling under the Amended Combines Investigation Act, 14 Osgoode Hall L. J. 521 (1976)
  • Facey, Brian and Assaf, Dany, Competition and Antitrust Law, 3rd Ed. (Toronto: LexisNexis Butterworths, 2006), page 358
  • Musgrove, James, Fundamentals of Canadian Competition Law, 2nd Ed. (Toronto: Carswell, 2010)

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