Question

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

a. Restricts a dealer to dealing exclusively with one supplier, reducing competition; acceptable to maintain quality
b. Encourages multiple dealers to deal exclusively with one supplier, increasing competition; acceptable to limit profits
c. Limits the number of exclusive dealers, increasing competition; acceptable to increase profits
d. Allows dealers to freely choose suppliers, increasing competition; acceptable to maintain quality

Answer 1

Exclusive dealing can reduce competition by restricting a dealer to one supplier, potentially creating market control for certain goods (option a) . It is sometimes acceptable when it promotes brand-specific competition or maintains quality, but can be anticompetitive if it limits market diversity and consumer choice.

Step-by-step explanation:

Exclusive dealing is a practice where a dealer is restricted to dealing exclusively with one supplier. This can reduce competition because it can prevent other retailers from selling the same products, thereby limiting the choices available to consumers and creating a situation where one retailer may have significant control over the market for certain goods. Exclusive dealing might be considered acceptable when it is used to maintain product quality, or to encourage competition among dealers of the same brand, as with Ford only selling to Ford dealers and General Motors to GM dealers.

However, if one large retailer were to obtain the exclusive rights to be the sole distributor of a wide range of products, such as televisions, computers, and audio equipment from multiple companies, it could have a significantly anticompetitive effect on other retailers. This kind of exclusivity could reduce market competition and consumer choice, which is why such agreements must be scrutinized under competition law.