A Horizontal Agreement: What It Means and How It Affects Competition
A horizontal agreement is a mutual understanding or arrangement made between two or more companies that operate at the same level of the supply chain. This type of agreement is considered anti-competitive and prohibited under most antitrust laws, as it can lead to a reduction in competition and higher prices for consumers.
Horizontal agreements can take many forms, including price-fixing, market allocation, and output limitation. Price-fixing occurs when companies agree on a set price for their products or services, which prevents competition on price. Market allocation happens when companies agree to divide markets or territories, which limits consumer choice. Output limitation occurs when companies agree to limit their production or output, which can lead to higher prices due to limited supply.
Horizontal agreements are illegal because they can result in higher prices, reduced output, and lower quality products or services. They also limit consumer choice and harm the overall economy by reducing competition.
One example of a well-known horizontal agreement is the case of Apple and Google. In 2010, both companies agreed not to poach each other`s employees, which led to a reduction in competition for talent and potentially higher salaries. This agreement was considered illegal and led to a settlement of $415 million in a class-action lawsuit.
Horizontal agreements can lead to significant fines and legal consequences for companies that engage in them. It is important for companies to avoid these types of arrangements and instead focus on healthy competition that benefits consumers and promotes innovation.
In conclusion, a horizontal agreement is a mutual understanding between companies operating at the same level of the supply chain. It is considered anti-competitive and prohibited under most antitrust laws. These agreements can take many forms, including price-fixing, market allocation, and output limitation. Companies that engage in horizontal agreements can face significant fines and legal consequences. It is important for companies to avoid these types of arrangements and instead promote healthy competition that benefits consumers and the overall economy.