Horizontal Restraints

Definition

Horizontal restraints refer to agreements or practices between competitors at the same level of the supply chain that restrict competition. These types of restraints are often considered anticompetitive and are subject to regulation by antitrust authorities.

5 Must Know Facts For Your Next Test

1. Horizontal restraints are considered more harmful to competition than vertical restraints, as they directly involve competitors at the same level of the supply chain.
2. Regulators closely scrutinize horizontal restraints, as they can lead to higher prices, reduced output, and less innovation for consumers.
3. Certain horizontal restraints, such as joint ventures or research and development agreements, may be permissible if they generate pro-competitive benefits that outweigh the anticompetitive effects.
4. Horizontal restraints can take many forms, including price fixing, output restrictions, market allocation, and boycotts.
5. The severity of the antitrust violation for horizontal restraints depends on factors such as the market power of the firms involved and the extent of the restraint.

Review Questions

• Explain how horizontal restraints differ from vertical restraints in terms of their potential impact on competition.
  • Horizontal restraints, which involve agreements between competitors at the same level of the supply chain, are generally considered more harmful to competition than vertical restraints, which involve agreements between firms at different levels of the supply chain. This is because horizontal restraints directly reduce competition between rivals, potentially leading to higher prices, reduced output, and less innovation for consumers. In contrast, vertical restraints may have both pro-competitive and anticompetitive effects, and their impact on the market is more complex to assess.
• Describe the role of regulators in addressing horizontal restraints and the factors they consider when evaluating the legality of such practices.
  • Regulators closely scrutinize horizontal restraints due to their potential to significantly harm competition. When evaluating the legality of horizontal restraints, regulators consider factors such as the market power of the firms involved, the extent of the restraint, and the potential pro-competitive benefits that may offset the anticompetitive effects. Certain horizontal restraints, such as joint ventures or research and development agreements, may be permissible if they generate efficiencies that outweigh the harm to competition. However, the most egregious forms of horizontal restraints, such as price fixing and market allocation, are generally considered per se illegal and are subject to strict enforcement actions by antitrust authorities.
• Analyze the various forms that horizontal restraints can take and explain how the severity of the antitrust violation may differ depending on the specific nature of the restraint.
  • Horizontal restraints can take many forms, including price fixing, output restrictions, market allocation, and boycotts. The severity of the antitrust violation for horizontal restraints can vary depending on factors such as the market power of the firms involved and the extent of the restraint. For example, a blatant price-fixing agreement between dominant firms in a highly concentrated market would be considered a more severe violation than a limited market allocation agreement between smaller competitors. Regulators also consider whether the horizontal restraint generates any pro-competitive benefits, such as increased efficiency or innovation, that could outweigh the harm to competition. Ultimately, the legality of a horizontal restraint depends on a careful analysis of its competitive effects and the specific market conditions in which it operates.

Related terms

Cartel: A cartel is a group of independent firms that collude to control prices, limit output, or divide up a market, reducing competition.

Price Fixing: Price fixing is an agreement between competitors to set the price of a good or service, eliminating price competition.

Market Allocation: Market allocation is an agreement between competitors to divide up a market, customers, or territories, reducing competition.