Have you ever heard the term ‘exclusive dealing’ before? In the past, we covered ‘misuse of market power,’ but in this article, we will cover exclusive dealing, which is another form of anti-competitive behaviour.
What is exclusive dealing?
Exclusive dealing is when one business restricts another business. This can be through restricting a business from engaging with certain parties and locations or from completing particular actions. This includes businesses that are supplying products, services, licenses and leases.
For example, John owns a factory supplying distributors with porcelain bowls. Sam is a distributor who regularly orders bowls from John. He also orders porcelain bowls from Jane’s factory. Sam goes to order his bowls from John, but this time John tells Sam he can only order from him if he agrees not to order from Jane. He agrees, but as a result, he increases the price of orders to retailers, who increase their prices to customers. This has the effect of harming the consumer and lessening competition.
Exclusive dealing is found within section 47 of the Competition and Consumer Act 2010 (Cth) (the Act). However, to be exclusive dealing it must also have the effect of ‘substantially lessening competition’ (SLC).
What is SLC?
SLC is not clearly defined in the Act. The Courts define SLC as being ‘weighty, big or real’ in relation to its market. They stress that there is no universal SLC definition and that SLC will depend on the context. This allows for SLC to be flexibly applied. However, this leaves the rest of us still scratching our heads!
Party A grows the majority of grain in Western Australia. Party B is Party A’s transporter. B transports A’s grain to A’s buyers. As a requirement of doing business, party A requires buyers to use only party B to transport the grain. Therefore, buyers are restricted to using only party B to transport their grain, regardless of cost, efficiency or preference.
Party A excludes buyers by forcing them to employ party B’s services only. This substantially lessens competition in the grain transport market, as party A is the main producer of grain, which provides it the market power to exclude buyers from using other grain transport providers other than party B.
Therefore, from this example, we can see that SLC involves businesses with large market shares, who use their influence to affect related markets by controlling third parties in those related markets.
If a business wants to engage in exclusive dealing but is confident that it will not result in SLC or if it will, the public benefit outweighs the harm SLC causes, it can apply for a notification from the ACCC (Australian Competition and Consumer Commission). If the ACCC agrees, then the exclusive dealing is notified and the business can go ahead without breaking section 47 of the Act. However, the ACCC can revoke its notification at any time. Although, it then bears the onus for proving that the business’s exclusive dealing no longer benefits the public.
Understanding exclusive dealing is crucial for understanding your business rights. This article provides an overview, but you should still seek legal advice if you think exclusive dealing will affect your business.
Want to know more? Contact a LawPath consultant on 1800 529 728 to learn more about exclusive dealing and to obtain a fixed-fee quote from Australia’s largest legal marketplace.