Scenario: a manufacturer is selling its product to several local businesses makes an agreement to exclusively sell the product to a big box store (meaning the manufacturer would not be able to fill the current or any future orders it has with the local stores).
What are some ways for the big box store and the manufacturer to avoid violating antitrust laws?
Manufacturers are allowed to negotiate exclusive distribution deals with a vendor of their choice without falling foul or antitrust legislation. However in this particular scenario the manufacturer may be found in breach of contract if they fail to fill existing orders (but that has nothing to do with the anti-trust). In regards to anti-trust legislation here are some of the ways for the manufacturer and distributor to avoid falling afoul of the law:
- They should not be seen to be price fixing or price gauging on the product.
- The retailer and the manufacturer cannot be under the same corporate ownership or majority shareholder trying to create an oligopoly.
- If the product is exclusive to the manufacturer (for example a patented cancer drug) then such an agreement will be in violation of anti-trust legislation as it creates a market monopoly (although sometimes exceptions can be made with prior approval).
- The current retailers will need to be given ample warning of the change in business relationship.