Definition of Horizontal Agreement

Definition of Horizontal Agreement

A horizontal agreement is a type of agreement or understanding that is made between two or more businesses that are operating at the same level of the supply chain. This means that they are competitors, rather than being at different stages of the supply chain such as a supplier and a customer.

The purpose of a horizontal agreement is usually to coordinate or cooperate on certain aspects of business operations, such as pricing, marketing, or distribution. However, these agreements can be seen as anti-competitive and potentially harmful to consumers if they lead to a reduction in competition, higher prices, or a loss of consumer choice.

Horizontal agreements can include price-fixing arrangements, market allocation agreements, and agreements to limit production or output. These types of agreements are typically prohibited by antitrust laws, which are designed to promote competition and protect consumers from anti-competitive practices.

In order for a horizontal agreement to be legal, it must meet certain criteria. Firstly, the agreement must not have the effect of substantially lessening competition in a relevant market. Secondly, the agreement must not be deemed to be a hardcore restriction, which includes price-fixing, market allocation, and output restriction agreements.

Horizontal agreements that do not meet these criteria may be subject to investigation by antitrust authorities, which could result in fines or other penalties for the businesses involved. In some cases, the businesses may also face civil lawsuits from consumers or other businesses that have been harmed by the anti-competitive practices.

In conclusion, a horizontal agreement is a type of agreement that is made between businesses that are operating at the same level of the supply chain. These agreements can be beneficial for businesses in terms of coordination and cooperation, but they can also be anti-competitive and harmful to consumers if they lead to a reduction in competition. It is important for businesses to understand the legal requirements for horizontal agreements and to avoid engaging in anti-competitive practices that could lead to legal consequences.