Exclusivity And Contracting Essay

336 WordsMar 4, 20092 Pages
The word “exclusivity” in our minds associates with something special, rare, expensive. But exclusive contract is just a business term which means a special agreement between principle (the company on whose behalf an agent acts) and exclusive agent (the only person or company authorized to distribute the principle`s goods in a specified territory). As any other things in the universe exclusive contracts have their advantages and disadvantages for both parties. The first one advantage for the principle is administrative advantage of dealing with one organization: it takes much less time and paper work and causes less bureaucratic problems when you deal with one company than with many. Another advantage is that dealing with one agent is less confusing for the customer: he can be sure that if he buys goods in this company, these goods will be of a good quality and he will get full guarantee and etc. The third advantage of exclusive contract is that it avoids agents competing with the same product. Of course there are advantages for the agent too. The first is increase bargaining power with principle, because he has no alternative besides dealing with this particular company. Also exclusive contract provides organization with a clear commercial image. Finally it gives agent unlimited potential for particular product. Now lets talk about disadvantages. For the principle it is reducing of bargaining power (as already was mentioned) and dependence on the success of one distributor, because supplier working on the exclusive basis have no other partners to ensure him. Disadvantages for the agent are as follows: he depends on product and back-up service of one company and may become associated with a loser. As a conclusion I want to say that exclusive contracts may be very useful for the both parties, but before making decision weather to sign it

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