Howard P. Marvel is Professor of Economics in the Department of Economics and Professor of Law in the Moritz College of Law, both at The Ohio State University.
Exclusive dealing prevents the bait-and-switch behavior by dealers who convert customers drawn by one brand to the products of its rivals. Despite the red flag of “exclusive” in its title, the practice is ordinarily uncontroversial, indeed innocuous. Automobile manufacturers often pay incentives to encourage dealers to deal exclusively in their vehicles. Business format franchising ensures that large swathes of distribution are exclusive. And when exclusive dealing is denied to suppliers, the results can be catastrophic, as when the FTC massacred those manufacturers of hearing instruments that relied on exclusive dealers. The FTC sued five such firms for exclusive dealing, four of which agreed to drop it, and promptly died.
When does exclusive dealing represent a problem? When distributors that sign exclusive dealing arrangements are the only way for rival suppliers to get to market. Thus, the Section 2 Report says that the analysis of exclusive dealing begins with a determination “whether the arrangement has the potential to harm competition and consumers. In situations where competitive harm is implausible-for instance, where other efficient distribution methods are available in sufficient size and number to rivals-courts appropriately uphold the arrangement.” (at 140)
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