As businesses seek to gain a competitive edge in the marketplace, they often enter into agreements with other companies to collaborate on various aspects of their operations. However, some of these agreements can violate antitrust laws and stifle competition, leading to higher prices and reduced consumer choice. Two types of anti-competitive agreements that are particularly problematic are horizontal and vertical agreements.
Horizontal agreements occur between competitors in the same industry. These agreements aim to limit competition by coordinating prices, output, or other aspects of their businesses. For example, two competing companies might agree to set prices at a certain level, so they can both make more profit than they would if they competed against each other. Horizontal agreements are typically illegal in most countries, as they violate antitrust laws that are designed to promote competition and protect consumers.
Vertical agreements, on the other hand, involve companies that operate at different levels of the supply chain, such as a manufacturer and a distributor. These agreements can also have anti-competitive effects, as they allow one company to exercise control over another and restrict competition in the market. For example, a manufacturer may enter into an agreement with a distributor that requires the distributor to sell only the manufacturer`s products, effectively shutting out competitors from the market.
One common type of vertical agreement that has raised antitrust concerns is the use of minimum resale price maintenance (RPM). This occurs when a manufacturer sets a minimum price that resellers must charge for its products. While some argue that RPM helps protect small retailers from price undercutting by larger retailers, others argue that it limits competition and harms consumers by artificially inflating prices.
To avoid running afoul of antitrust laws, businesses must be careful when entering into agreements with other companies. It is important to consult with legal professionals to ensure that any agreements comply with relevant regulations and do not violate antitrust laws. Transparency is also key, as businesses should be open and honest about the terms of any agreements they enter into with other companies. By promoting competition and protecting consumers, businesses can help build a healthy, thriving marketplace that benefits everyone involved.