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. This type of conduct is common between buyers and suppliers.
Sometimes the conduct is prohibited outright, other times it is subject to a test on whether it has substantially lessened competition in a market.
When it is subject to a substantial lessening of competition test, it is not enough to merely show that an individual business has been damaged. In this context the term 'substantial' is interpreted to mean an effect that is real or of substance. To determine whether a substantial lessening of competition occurs the overall market for the particular product and its substitutes, as well as whether or not the refusal would substantially restrict availability of that type of product to consumers, must be analysed. When territorial restrictions have been imposed as a condition of supply, it must be determined whether consumers are severely restricted in their ability to buy a product or its substitutes within the territory.
As a general guide, the more exclusive the product and the more powerful the supplier, the more likely it is that competition will be affected.
There are essentially two types of exclusive dealing: full line forcing and third line forcing.
Full line forcing
Full line forcing involves 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.
However, for a full line forcing arrangement to contravene the Competition and Consumer Act 2010 it must have the effect of substantially lessening competition in the relevant market.
Third line forcing
Third line forcing is a specific form of exclusive dealing prohibited outright by the Competition and Consumer Act. It is not subject to the substantial lessening of competition test. It involves the supply of goods or services on condition that the purchaser buys goods or services from a particular third party, or a refusal to supply because the purchaser will not agree to that condition.