When it comes to legal terminology, the phrase “horizontal agreement” pops up from time to time. But what exactly does it mean?
In the simplest terms, a horizontal agreement is an agreement between two or more companies that operate on the same level of the supply chain. This means that they are competitors rather than partners. The agreement can relate to various aspects of their business operations, such as prices, market share, customer allocation, or production quotas.
Horizontal agreements are often subject to antitrust laws, as they can potentially restrict competition and harm consumers. Therefore, companies must be careful about the terms and scope of their agreements to avoid violations and penalties.
One example of a horizontal agreement is price-fixing, whereby two or more competitors agree to set a certain price for their products or services. This can result in artificially high prices for consumers, as they have limited options to choose from. Price-fixing is illegal under antitrust laws and can lead to significant fines and legal repercussions.
Another example of a horizontal agreement is market allocation, whereby competitors agree to divide up specific geographic areas or customers among themselves. This can limit consumer choice and lead to higher prices or lower quality products. Market allocation is also illegal under antitrust laws.
Vertical agreements, on the other hand, are between companies at different levels of the supply chain, such as between a manufacturer and a distributor or a retailer. These agreements can still be subject to antitrust laws, but they are generally viewed as less harmful to competition than horizontal agreements.
In summary, a horizontal agreement is an agreement between competitors at the same level of the supply chain. While these agreements can potentially benefit the parties involved, they can also harm competition and consumers. Therefore, companies must be careful when entering into such agreements and ensure that they comply with antitrust laws.
