Horizontal Agreements and Competition Law: An Overview
Businesses are always looking for ways to enhance their competitive advantage, especially in highly competitive markets. One way to do this is through collaborative agreements among competitors, also known as “horizontal agreements.” These agreements are becoming increasingly common across various industries, including healthcare, technology, and retail. However, as advantageous as they may seem to businesses, these agreements often raise concerns for competition law authorities.
So what are horizontal agreements, and what do businesses need to know about competition law when entering into them?
Horizontal agreements are agreements between firms that are operating at the same level of the supply chain, typically competitors, with the intention of coordinating their business practices. These agreements can take various forms, including price-fixing, market allocation, and bid-rigging. Although these agreements can provide businesses with potential benefits, they often result in decreased competition and higher prices, thus harming consumers.
Competition law, also known as antitrust law, aims to promote free competition among businesses. The law prohibits anti-competitive practices that prevent or restrict competition, including horizontal agreements. Under competition law, such agreements are generally considered per se illegal, meaning they are presumed to be anti-competitive without the need for further investigation.
However, not all horizontal agreements are illegal. Some may be permissible if they meet certain requirements. For example, certain agreements may be exempt from competition law if they can demonstrate significant benefits to consumers or if they fall within specific safe harbors. These safe harbors include agreements that are necessary for product standardization, research and development, and joint purchasing.
Businesses that enter into horizontal agreements need to be aware of competition law requirements to avoid legal scrutiny. Firms must ensure that any agreements entered into do not violate competition law and are compliant with relevant regulations. If found guilty of anti-competitive practices, businesses may be subject to hefty fines, damages, and negative publicity. In some cases, individuals involved in such behavior may even face criminal prosecution.
In conclusion, horizontal agreements can be beneficial for businesses looking to enhance their competitive advantage, but they also come with significant legal risks. Businesses need to ensure that any agreements entered into are compliant with competition law and aligned with consumer interests. Firms must be able to demonstrate that the agreements they enter into have significant benefits for consumers, or they risk investigation and possible legal action. By following competition law best practices, businesses can ensure compliance while still gaining the advantages of horizontal agreements.