When it comes to business practices, there are certain agreements that are allowed and others that are prohibited. One type of prohibited agreement is known as a horizontal agreement.
But what exactly is a horizontal agreement?
A horizontal agreement is an agreement between two or more competitors that restrains competition between them. In other words, it is an agreement that limits the ability of the parties involved to compete with each other.
Horizontal agreements are generally illegal under antitrust laws because they can lead to reduced competition and higher prices for consumers. However, there are certain exceptions to this rule, such as when the agreement is necessary for the parties to achieve a pro-competitive benefit.
So, which of the following is a horizontal agreement?
a. An agreement between a manufacturer and its distributors
b. An agreement between a manufacturer and its suppliers
c. An agreement between two competing manufacturers
d. An agreement between a company and its customers
The correct answer is c. An agreement between two competing manufacturers is a classic example of a horizontal agreement. Such an agreement could involve price-fixing, market sharing, or bid-rigging, all of which are illegal under antitrust laws.
An agreement between a manufacturer and its distributors or suppliers is known as a vertical agreement and is usually not illegal under antitrust laws, as long as it does not have an anti-competitive effect.
An agreement between a company and its customers is not considered a horizontal or vertical agreement, as the two parties are not competitors.
In conclusion, businesses must be careful when making agreements with their competitors, as horizontal agreements are generally illegal. Before entering into any such agreements, it is important to consult with legal counsel and ensure that they comply with antitrust laws.
