Legal Definitions - secondary-line competition

Secondary-line competition refers to a situation where a seller (like a manufacturer or wholesaler) treats its direct customers differently, and this difference harms competition *among those customers*. Essentially, it's about the competitive impact felt by buyers who are at the same level in the supply chain but receive varying prices, terms, or services from their common supplier. This unequal treatment can give some customers an unfair advantage over others, making it harder for the disadvantaged customers to compete effectively in their own market.

Here are a few examples to illustrate this concept:

• Example 1: Retailer Discounts
  Imagine a popular beverage manufacturer that sells its soft drinks to various grocery store chains. The manufacturer offers a significant volume discount to "MegaMart," a large national chain, but does not offer the same discount to "Local Grocer," a smaller regional chain, even though Local Grocer purchases similar quantities. Because MegaMart pays less for the soft drinks, it can either sell them at a lower price to consumers or enjoy higher profit margins, making it difficult for Local Grocer to compete effectively on price for that product. This scenario illustrates secondary-line competition because the manufacturer's discriminatory pricing harms competition *between* MegaMart and Local Grocer, who are both direct customers of the manufacturer operating at the same retail level.

• Example 2: Software Reseller Programs
  Consider a software company that sells licenses for its business management software through a network of independent IT consulting firms, who then resell the software to their clients. The software company offers a substantial marketing co-op fund and dedicated technical support resources only to its largest reseller, "Tech Solutions Pro." Smaller IT consulting firms, without access to these benefits, struggle to promote the software as effectively or provide the same level of pre-sales support to potential clients. This puts them at a competitive disadvantage when trying to win clients who need that specific software. This is an example of secondary-line competition because the software company's preferential treatment of one reseller harms competition *among* the various IT consulting firms that are all selling its product.

• Example 3: Industrial Supply Rebates
  An industrial parts manufacturer sells its components to several different equipment assembly companies. The manufacturer institutes a rebate program that provides a 10% cash back on purchases exceeding a certain annual volume. Only "Global Assemblers Inc.," the largest customer, consistently meets this high volume threshold, while smaller competitors like "Precision Machines Co." rarely do. As a result, Global Assemblers Inc. effectively pays less for the components, allowing them to offer their finished equipment at more competitive prices or achieve higher profits. This creates a competitive disadvantage for Precision Machines Co. and other smaller assemblers. This demonstrates secondary-line competition because the manufacturer's rebate program, while seemingly volume-based, disproportionately benefits one customer, thereby harming competition *among* the equipment assembly companies who are all purchasing components from the same manufacturer.