Prohibited Horizontal Agreements: What You Need to Know
As a business owner, you may be aware of the importance of collaboration and cooperation with your competitors to achieve common goals. However, some forms of collaboration can lead to illegal practices and antitrust violations known as prohibited horizontal agreements. In this article, we`ll give you an overview of prohibited horizontal agreements and what you need to know to avoid them.
What are prohibited horizontal agreements?
A prohibited horizontal agreement is a type of antitrust violation that happens when two or more companies agree to take actions that reduce competition in a particular market. Horizontal agreements are made between competitors in the same industry who would typically be competing against each other but instead agree to collaborate in ways that benefit themselves and not the consumer.
Examples of prohibited horizontal agreements include price-fixing, bid-rigging, market allocation, and standard-setting. These agreements harm competition and decrease consumer choice, leading to higher prices and lower quality products.
Price-fixing is one of the most common forms of a prohibited horizontal agreement, where two or more companies agree to set prices to prevent competition and maintain a higher profit margin. When several companies agree to fix prices, the result is the absence of competition and consumers are left with no option but to pay the set prices. This practice is illegal and can lead to legal action and severe penalties.
Bid-rigging is another prohibited horizontal agreement whereby companies agree on which party will win a bid for a contract or project. The agreement is intended to ensure that a particular party will win the contract, even if the other parties can offer a better deal. This practice results in reduced competition and higher prices for the consumer.
Market allocation refers to an agreement between competitors to divide territories or customer groups among them, thereby reducing competition. This practice is illegal and can result in higher prices, lower quality products, and reduced consumer choice.
Finally, standard-setting is an agreement between competitors to establish industry standards. This can be beneficial for consumers as it ensures product compatibility. However, it can become illegal if companies agree to set standards that exclude other competitors from the market.
How to avoid prohibited horizontal agreements
To avoid prohibited horizontal agreements, companies need to adopt a proactive approach to antitrust compliance. This means ensuring that employees are aware of the antitrust laws and the severe consequences of violating them.
Companies should avoid any communication or collaboration with their competitors that may lead to agreements that restrict competition. Avoid discussing prices, market share, or agreeing to divide territories. If you must collaborate with competitors for a viable business reason, ensure that the collaboration does not impact competition.
In conclusion, prohibited horizontal agreements are illegal and can lead to significant legal penalties. Companies must avoid any communication or collaboration with competitors that may lead to such agreements. Adhering to antitrust laws is not only necessary, but it is also good business practice. By creating a competitive market, businesses can provide better quality products and services to customers, which results in sustained growth and profitability.