[avar]

Is general it's not so clear cut.

If I make wheat and you run a bakery I might offer you a 30% discount for the next 5 years, but only if I'm your only wheat supplier.

This sort of arrangement allows us to spread the risk of market uncertainties over that period.

I can then build extra capacity, and you get a cheaper product, or one with less price uncertainty.

Maybe we should do away with this, and say that bakeries must buy wheat like airlines buy fuel, i.e. through more complex financial instruments.

Now, I may be doing this because I'm one of only two companies making wheat, and I'm looking to drive the other one out of business. That's basically what Intel was doing here.

But it's not clear to me that we should conclude that exclusivity deals in general are bad.

[bruce511]

I agree, and it works the other way to.

Say I'm a local wheat producer. I sign a deal with the local bakery. That stops a multi-national from undercutting me.

The contract cements the benefit that both I and the bakery have from mutually working together, and removes the risk to both parties of some outside party damaging both of us.

In other words exclusivity works for small companies in spaces dominated by behemoths.

Think craft beer and local pub.

[Jochim]

It's far more likely that the multi-national has already signed such a contract with the bakery, preventing you from entering the market in the first place.

Even if you were to get there first, when the contract comes up for renewal the multi-national can offer terms that would be unsustainable for a small producer.

[shkkmo]

The primary "risk" removed here is competition. I think exclusivity contracts as a risk hedging tool are bad for the economy. If you need to hedge price risk, we should use insurance or other financial tools for that. Additionally, you can have contracts that lock in prices and quantities without requiring exclusivity.

I would be bummed if my local tap roomed signed an exclusivity contract with a local brewery. These days there often many local breweries and new ones open regularly. It would be a shame for the local taproom to miss out on offering a wider range of beers because they got locked into an exclusivity contract.

If you are providing a discount or kickback or whatever for exclusivity, that is an anticompetitive behavioral, regardless of size.

[ncallaway]

They should be illegal if the company owns or controls 5% or more of the given market.