Why Horizontal Restraint is a Threat to Consumers and Innovations: Understanding Illegal Trade Practices

horizontal restraint

involves collaboration among competitors at the same functional level in the chain of distribution ex.) two manufacturers, wholesalers, or retailers who price fix, divide up markets, and group boycott

Horizontal restraint is a type of restraint on trade that happens when competitors within the same market collaborate to create artificial barriers to entry, reduce competition, or increase prices. These types of agreements are illegal under United States antitrust laws, as they restrain trade and negatively impact consumers.

Examples of horizontal restraints include price fixing, bid rigging, market allocation, and group boycotts. Price fixing involves competitors agreeing to set a specific price or range of prices for their products or services, while bid rigging occurs when competitors agree to not compete against each other during the bidding process. Market allocation occurs when competitors agree to divide a market up among themselves and avoid competing with each other within designated areas. Lastly, group boycotts occur when competitors agree to work together to prevent a third party from entering a market.

Horizontal restraints result in higher prices, reduced competition, and less innovation within a market. To combat horizontal restraints, the antitrust laws in the U.S. have several provisions that make it illegal for competitors to engage in these practices. The government can take legal action against companies that engage in horizontal restraints and penalize them with fines, criminal charges, and potentially breaking up the company.

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