Single branding agreements (so called in Europe) are vertical agreements that bind the customer to purchase all or most of a specific type of goods or services only from the dominant supplier (Article 102 TFEU). The term of the exclusivity agreement is applicable to an exclusive supply obligation, where there is a limitation for the supplier to supply to anyone other than the specific downstream customer and the other way around.
It should be noted that the Commission stated in the guidelines on vertical restraints that binding agreements for the purchase of assets of 80% or more, will be taken in line with the meaning of the exclusive deals and could be found to be abusive (Hoffmann-La Roche v Commission).
An exclusive purchase agreement is not in itself illegal under Article 102 (Intel Corp Inc v European Commission) and can only be considered abusive if it can have a foreclosure effect on equally efficient competitors and does not have a objective justification. Thus, a defense that the client voluntarily entered into an agreement will not be sufficient; the question is whether the deal could horizontally foreclose competitors efficiently (or more) than the dominant company in the market.
Exclusive trade is not inherently or allegedly illegal (Sherman Act, 15 U.S.C. §§ 1-7; Clayton Act, 15 U.S.C. §§ 12-27). Antitrust concerns about exclusivity agreements are based on the possibility that the execution of the agreement precludes competition in substantial proportion of the relevant line of business.
To determine whether a particular exclusivity arrangement operates as an unlawful restriction on trade, courts apply the rule of reason articulated by Judge Brandeis in Board of Trade of City of Chicago v. US, 246 US 231 (1918). "The real test of legality is whether the restriction imposed is such that it merely regulates and perhaps thereby promotes competition or whether it is such as to suppress or even destroy competition.” To determine this question the court must normally consider the peculiar facts of the activity to which the restriction applies; its condition before and after the restriction was imposed; the nature of the restriction and its actual or probable effect.
Most exclusivity agreements are beneficial because they encourage marketing support for the manufacturer’s brand. By becoming an expert in manufacturer’s products, the retailer is encouraged to specialize in promoting that manufacturer’s brand. This may include offering special services or services that cost money, such as an attractive shop, skilled salespeople, extended business hours, a handy product inventory, or quick warranty service.
Single branding can be seen as a barrier to entry, especially in markets operating under conditions of imperfect competition, monopoly or oligopoly, where there is price and product differentiation, as well as an imbalance of market power between incumbents, competitors and competitors due to the existence of vertical integrations within the market, which lead to market inefficiencies.
The Chicago and TCE accounts of single branding suggest that the "workable competition" account of such agreements and antitrust’s resulting hostility toward them is not justified. Of course, this observation still begs the question of what purposes these restraints did serve. TCE fills this gap, providing possible explanations for agreements that seem ill-suited for causing anticompetitive harm.
Indeed, at a more basic level, TCE’s recognition that exclusive dealing between separate firms is simply a particular form of nonstandard contracting, analogous to the nonstandard contract known as the firm, should immediately give pause to those who would pursue aggressive policies toward exclusive dealing agreements. One can reject the strong critique offered by Bork and other members of the Chicago school without contradicting their observation that many restraints once deemed unlawful by the courts arose in circumstance in which anticompetitive harm seemed quite unlikely, even during the inhospitality era (FTC v. Brown Shoe Co.). Absent some empirical or even theoretical showing, and I know of none, that "concerted" exclusive dealing produces more net harm than exclusivity that takes place "within the firm," pursuant to agreements between various actors, there seems to be no apparent rationale for the inhospitality era’s relative hostility toward such agreements. Any policy toward exclusive dealing, then, must rest upon a theoretical apparatus divorced from the workable competition model and its outmoded theory of the firm.
The response of Transaction Cost Economics or TCE sought to undermine price theory itself, or at least its conception of the firm and other non-standard contracts. Unlike the Chicago School, TCE offered to explain how exclusive dealing within and between firms produced benefits. In particular, TCE argued that complete and partial integration was a method of reducing or eliminating the costs of relying upon unbridled markets to conduct economic activity, particularly costs flowing from anticipated opportunism. Exclusive dealing, it was said, was no exception, and economists have identified several beneficial effects that such contracts can create.