Horizontal restraints are agreements between businesses that operate in the same market, which limit their competition with one another. These types of agreements are meant to protect established businesses from new entrants that can disrupt the market. However, they can also result in anticompetitive behavior, which can harm consumers.
Examples of horizontal restraints include price fixing, market allocation, and output restrictions. Price fixing is an agreement between businesses to fix the price of a product or service at a certain level. This can occur when businesses agree to charge the same price for a product, or when they agree to not compete on price. Market allocation is an agreement between businesses to divide up a market, so that each business only serves a certain geographic area or customer segment. Output restrictions are agreements between businesses to limit the amount of a product or service that they produce, in order to maintain higher prices and profits.
Horizontal restraints can have a negative impact on competition and innovation in a market. By limiting competition, businesses can charge higher prices and reduce the quality of their products and services. This can result in higher costs for consumers and lower levels of innovation in the market. In some cases, horizontal restraints can also lead to collusion between businesses, which can result in illegal activities such as price fixing.
However, there are some cases where horizontal restraints can be beneficial for businesses and consumers. For example, in the case of a joint venture between two businesses, horizontal restraints can help to ensure that the businesses are able to work together effectively without competing with one another. In addition, horizontal restraints can help to prevent the entry of new competitors into a market, which can be beneficial for established businesses.
Overall, horizontal restraints are agreements between businesses that limit competition in a market. While they can be beneficial in some cases, they can also harm consumers and lead to anticompetitive behavior. As a result, it is important for businesses to carefully consider the potential impacts of horizontal restraints on competition and innovation in a market.