Exclusive dealing is commonly used in commercial arrangements and in most cases will not harm competition.
An undertaking with substantial market power may, however, seek to foreclose competitors by preventing them from selling to customers though exclusive dealing arrangements. Exclusive dealing in this context includes arrangements requiring a customer to purchase, directly or indirectly, all or a substantial proportion of its requirements of a particular product from a particular undertaking. This may take the form of either an exclusive purchasing obligation or a conditional rebate.
For further information, please refer to Guideline on the Second Conduct Rule (in particular, paragraphs 5.23 to 5.32).
Hypothetical example
A large and popular rice noodle producer, LargeNoodle Co, offers significant rebates to local grocery stores in Hong Kong that agree to purchase a certain volume of rice noodles from LargeNoodle Co. LargeNoodle Co sets volume targets for each customer individually and these correspond roughly to the volume of noodles which the customer usually purchases. The targets are calculated over a period of one year and increase in size, year on year, for a period of 5 years. No rebates are received unless the grocery store hits the volume target, and after that point, the rebate is received in respect of all volumes purchased from LargeNoodle Co that year.
The effect of the rebate scheme is that customers in practice purchase all of their rice noodle requirements from LargeNoodle Co, as to do otherwise would lead to them losing the entire rebate for a particular year. Other rice noodle producers are effectively “locked out” from supplying a large portion of the grocery market and can no longer compete effectively with LargeNoodle Co. If LargeNoodle Co has a substantial degree of market power, this rebate scheme may amount to an abuse under the Second Conduct Rule.