Horizontal Restraints

Definition

Horizontal restraints are agreements between competitors at the same level of the supply chain that restrict competition. These types of agreements are a major focus of antitrust laws, as they can significantly impact market dynamics and consumer welfare.

5 Must Know Facts For Your Next Test

1. Horizontal restraints are considered per se illegal under U.S. antitrust laws, meaning they are automatically deemed to be anti-competitive without the need to prove actual harm to the market.
2. Price fixing agreements are the most common form of horizontal restraint, as they directly eliminate price competition between rivals.
3. Market allocation schemes can also be considered horizontal restraints, as they reduce competition by dividing up the market.
4. Group boycotts are another type of horizontal restraint, where competitors collectively refuse to deal with certain parties to exclude them from the market.
5. Antitrust laws aim to promote competition and protect consumers from the harmful effects of horizontal restraints, which can lead to higher prices, reduced output, and less innovation.

Review Questions

• Explain the key characteristics of horizontal restraints and how they differ from vertical restraints.
  • Horizontal restraints are agreements between competitors at the same level of the supply chain, such as price fixing, market allocation, and group boycotts. These types of restraints are considered per se illegal under antitrust laws because they directly eliminate competition between rivals. In contrast, vertical restraints involve agreements between firms at different levels of the supply chain, such as between a manufacturer and a distributor. Vertical restraints are generally analyzed under the rule of reason, which considers the potential pro-competitive and anti-competitive effects of the agreement.
• Analyze the potential harms to consumers and the market caused by horizontal restraints.
  • Horizontal restraints can have significant negative impacts on consumers and the broader market. By eliminating price competition, they can lead to higher prices, reduced output, and less innovation. Market allocation schemes can also limit consumer choice and prevent new entrants from challenging incumbent firms. Group boycotts can exclude certain competitors from the market, further reducing competition. These effects ultimately harm consumer welfare and undermine the competitive process that antitrust laws are designed to protect.
• Evaluate the role of antitrust laws in addressing horizontal restraints and promoting competition.
  • Antitrust laws play a crucial role in addressing horizontal restraints and promoting competition in the marketplace. The per se illegality of these types of agreements under U.S. antitrust law reflects the strong presumption that they are inherently anti-competitive and harmful to consumers. By strictly prohibiting these practices, antitrust enforcement helps maintain a level playing field, encourages innovation, and ensures that consumers benefit from the competitive process. The rigorous application of antitrust laws to horizontal restraints is essential for preserving the competitive dynamics that drive economic growth and consumer welfare.

Related terms

Price Fixing:

An agreement between competitors to set the prices of their products or services at a certain level, eliminating price competition.

Market Allocation:

An agreement between competitors to divide up a market, with each firm agreeing not to compete in the other's assigned territory.

Group Boycotts: An agreement between competitors to collectively refuse to deal with certain suppliers, customers, or other competitors, often to exclude them from the market.