The concept of horizontal agreements refers to agreements made between companies that operate at the same level in the supply chain. These agreements can include price-fixing, market allocation, and customer allocation. Such agreements can be illegal and harm competition, resulting in higher prices and reduced innovation. In this article, we will explore what horizontal agreements are, their effects on the market, and the legal measures taken to prevent them.
What are Horizontal Agreements?
Horizontal agreements are agreements made between companies that are operating at the same level in the supply chain. For instance, these agreements can occur between companies that manufacture similar products or provide similar services. These companies may agree to fix their prices, divide the market, or allocate customers. As a result, this may reduce the need for them to compete, leading to less innovation and higher prices.
Effects on the Market
Horizontal agreements can have significant effects on the market. They can lead to market power being concentrated in the hands of a few companies, and this can harm competition, reduce innovation, and lead to higher prices. When companies agree on prices, it can cause a rise in prices for consumers and reduce incentives to innovate. In addition, the allocation of customers and markets can limit the ability of smaller firms to compete, leading to reduced competition in the market.
Legal Measures to Prevent Horizontal Agreements
The legal measures taken to prevent horizontal agreements are designed to protect competition and prevent companies from engaging in anticompetitive practices. These measures include:
1. Antitrust Laws: Antitrust laws are designed to prevent companies from monopolizing a market or engaging in anticompetitive behavior. The Sherman Act and the Clayton Act are examples of antitrust laws that have been used to address horizontal agreements.
2. Competition Policies: Governments may implement competition policies that are designed to promote market competition. These policies may include measures that reduce barriers to entry, promote innovation, and protect consumers.
3. Cartel Prosecutions: Cartel prosecutions can be used to prosecute companies that engage in price-fixing, market allocation, or customer allocation. These prosecutions can result in fines, imprisonment, or both.
Horizontal agreements can have significant effects on the market, reducing competition, innovation, and leading to higher prices. Legal measures, such as antitrust laws, competition policies, and cartel prosecutions, are designed to prevent horizontal agreements and protect competition. As a professional, it`s important to understand the implications of horizontal agreements and ensure that any articles written on the topic are informative and accurate.