An exclusive dealership agreement or an exclusive agency agreement is a restrictive contract between a principal and an agent that binds them in an association for a specific time period under which neither can make similar deals with competitors of each other’s parties. It can involve a good, service, market, or territory. In terms of marketing, it means an arrangement which binds a retailer or wholesaler to a supplier and involvement of any other distributor or supplier in a given area is prohibited. For example, exclusive dealing due to vertical integration happens when the supplier owns sales outlets.
Exclusive dealing acts as a barrier to entry of new firms and can perpetuate oligopoly or monopoly form of market. So, it is allowed only if it is registered and approved by legislative bodies. However, ‘third line forcing’ is a form of exclusive dealing which is completely prohibited. In this, a supplier places a condition on his customers for the supply of goods or services whereby the customers must acquire certain goods or services from a specific third party nominated by the supplier.
A few common examples of exclusive dealing are as follows:
• Computer hardware stores offering pre-installed software of certain software companies
• Food outlets and college canteens agreeing to sell soft drinks of a particular brand only
• Petrol stations deal with one petroleum supplier only
• Seller selling only to a certain buyer
Hence, this concludes the definition of Exclusive Dealership Agreement along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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