Broadly speaking, exclusive dealing occurs when one person trading with another imposes some restrictions on the other’s freedom to choose with whom, in what, or where they deal. Most types of exclusive dealing are against the law only when they substantially lessen competition, although some types are prohibited outright.
Exclusive dealing can be divided into two broad categories:
- third line forcing
- other types of exclusive dealing.
Third line forcing occurs when a business will only supply goods or services, or give a particular price or discount on the condition that the purchaser buys goods or services from a particular third party. If the buyer refuses to comply with this condition, the business will refuse to supply them with goods or services.
In contrast to other types of exclusive dealing, third line forcing is prohibited no matter what its effect on competition.
Other types of exclusive dealing, including conduct known as full line forcing, involve a supplier refusing to supply goods or a service unless the intending purchaser agrees not to:
- buy goods of a particular kind or description from a competitor
- resupply goods of a particular kind or description acquired from a competitor
- resupply goods of a particular kind acquired from the company to a particular place or classes of places.
These types of exclusive dealing will only break the law when the conduct has the effect of substantially lessening the competition in the relevant market.
An assessment of whether full line forcing results in a substantial lessening of competition would involve consideration of:
- whether there has been a real effect on the competition in the overall market for a particular product and its substitutes
- whether the refusal to supply would substantially restrict the availability of that type of product to consumers
- whether consumers are severely restricted in their ability to buy a product or its substitutes because the business has imposed territorial restrictions as a condition of supply.
As a general guide, the more exclusive the product and the more powerful the supplier, the more likely it is that the competition will be affected.
The ACCC may grant a business an exemption for certain types of exclusive dealing, provided there is no substantial lessening of competition.
Applying for exemptions - protection from legal action where the public benefit outweighs any public detriment