Examples of a Horizontal Agreement

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A horizontal agreement refers to a contract or arrangement made between two or more companies that are on the same level of the supply chain. These companies are typically competing with each other, and the agreement is meant to help them collaborate towards a common goal without violating antitrust laws.

Examples of Horizontal Agreements

1. Price-Fixing Agreements

One of the most common types of horizontal agreements is a price-fixing agreement. This is where competing companies agree to set the same price for a product or service, which can result in higher profits for all parties involved. However, price-fixing agreements are illegal under antitrust laws because they can lead to monopolies and harm consumers by reducing competition and increasing prices.

2. Market Allocation Agreements

Market allocation agreements involve competing companies agreeing to divide a market or territory among themselves, such that they only sell products or services in their designated area. This can help companies avoid direct competition with each other, but it can also limit consumer choices and reduce overall competition in the market.

3. Output Restrictions

Another type of horizontal agreement is an output restriction, where competing companies agree to limit the amount of a product or service they produce or sell. This can help stabilize prices and avoid overproduction, but it can also lead to shortages and higher prices for consumers.

4. Collaborative Research and Development

In some cases, competing companies may enter into a horizontal agreement to collaborate on research and development projects. This can help them share the costs and risks of innovation, resulting in new products and services that benefit consumers. However, these agreements must be carefully structured to avoid antitrust violations and maintain healthy competition in the market.

Conclusion

In conclusion, a horizontal agreement refers to a contract or arrangement made between competing companies on the same level of the supply chain. Examples of horizontal agreements include price-fixing, market allocation, output restrictions, and collaborative research and development. These agreements can provide benefits for companies and consumers, but they must be structured carefully to avoid antitrust violations and maintain healthy competition in the market.

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